UN 2016
mie

Republic of the Philipyfines — rers7Ra770N UNTT
HOUSE OF REPR) TATIMES AN) NOEX SERVICE
Quezon City, Metro M. TET

Seventeenth Congress
First Regular Session

House Bill No. 492

‘TI DJALIA A. TURABIN-HATAMAN of Anak Mindanao
(AMIN) Party-List

Introduced by HON, SI

EXPLANATORY NOTE

Islamic Finance is estimated to be around USD 2.5 Trillion with Malaysia dominating
64% of global sukuk Shari’ah compliant bonds) issuances. Undeniably, it has evolved
from a faith based economic system with clear rules to that of an emerging global
industry, The number of Islamic financial institutions worldwide now exceeds 30, with
operations in over 75 countries, Even non-Muslim multinational companies such as
IBM, General Motors and Daewoo reportedly utilize Islamic banking for funding.

Clearly, it is not only for Muslims but also for the non-Muslims. In fact, South Africa
which has only 2% Muslim population has 5 Islamic banks, Philippines then, have to
address its own challenges by making major changes in terms of regulatory framework
and reintroduction of taxes and incentives. The Philippines, is in fact, a pioneer in
Islamic Finance. Philippines’ Al-Amanah Islamic Investment Bank is one of the oldest
Islamic banks in the world established in 1974. It has expanded its operations in
Cagayan de Oro, Cotabato, Davao, General Santos, Iligan, Marawi, Zamboanga, Jolo
and Makati. Aside from the Al-Amanah Islamic Investment Bank, there are also more
than 60 Shari'ah compliant bonds being traded in the Philippine Stock Exchange.

With the scheduled implementation of the ASEAN integration, the Philippines can


harness greater economic opportunities in pushing for Islamic Finance and to
complement Halal as a tool to achieve inclusive growth. Philippine legislators and
economic managers must work hand in hand to look at Islamic Finance and support it
as a source of productive and ethical investments. Access to Islamic funds is also a
political solution, paving the way for greater participation of Muslim Filipinos to
nation-building, benefitting the whole Filipino nation,

With the Roadmap for the Al-Amanah Islamic Investment Bank in mind, this bill hopes
to address the inadequacy of technical knowledge; poor appreciation of the general
Public on Islamic Finance even the Muslim communities in Mindanao; lack of
government infrastructure to implement Islamic banking; identification of possible tie-
ups with foreign Islamic countries and banks.

In view of the foregoing, the immediate passage of this bill is urgently sought,

HON, SITTI pie A. TURABIN-HATAMAN


Republic of the Philippines
House of Representatives
Quezon City, Metro Manila

SIXTEENTH CONGRESS
Second Regular Session

492

HOUSE BILL NO.

Introduced by

An Act amending Republic Act No. 6848, also known as, “Charter of Al
Amanah Islamic Investment Bank of the Philippines” and providing for the
regulation and organization of an expanded Islamic banking system in the
Philippines.

WHEREAS, the State, in Section 20, Article II of the Constitution, encourages
private enterprise and provides incentives to needed investments;

WHEREAS, under the Constitution, the use of property bears a social function
so that the consequences in law also must be defined by policy objectives related
to property rights in productive enterprises;

WHEREAS, toward this end, the Government has committed itself to the
establishment of Islamic banks operate within a legal framework permitting the
investors or participants the rights to equitable or beneficial share in the profits
realized from financing productive activities and other operations;

WHEREAS, to prom Jer i ic development of th

nation, there shall inks _and_ desi slamic

and_to establish_an. industrial
ventures based on the amis concept of ares Now, therefore.

Section 1; Sections 5, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23, 24, 33, 34,
35, 36, 38, 40, 41, 43, 48 and 49 of the Republic Act (R.A.) No, 6848 are hereby

i Sections 1, 2, 3, 4, 6, 7,8, 1: 27, 1, 32, 37, 42, 44,
46, 47, 1, and * io, 6848 are hereby amended to read as follows:



CHARTER OF AL AMANAH ISLAMIC INVESTMENT BANK OF THE
PHILIPPINES AND PROVIDING FOR THE REGULATION AND
ORGANIZATION OF AN EXPANDED ISLAMIC BANKING SYSTEM IN

THE PHILIPPD

Part _1- ISLAMIC BANKING SYSTEM AND ITS PURPOSE

Section 1. Title. - This Act shall be known as, an Act amending Republic Act
R.A.) No, 6848, also known as “Charter of Al Amanah Islamic Investment Bank
of the Philippines and providing for the organization and regulation of an

expanded Islamic bankinj in the Philippines.

Section 2. Name, Domicile and Place of Business. - here is hereby created the
Al-Amanah Islamic Investment Bank of the Philippines, which shall be
hereinafter called Amanah Islamic Bank and specifically known as AIB. Its
principal domicile and place of business shall be in the Philippines.

Section 3. Establishment of other Islamic Banks, - Other Islamic banks
established as may be authorized by the Bangko Sentral ng Pilipinas (BSP), ‘The
engage in Islamic banking arrangements, including structures, transacti

ractices, through a designated Islamic banking unit within the bank,

‘The Monet rd inder such itm. ribe, authorize foreign
islamic banks to establish Islamic banking operations in the Philippines under
any one of the modes of entry under R.A. No, 7721, as amended by R.A. No.
10641 notwithstanding the limitations under Section 2 thereof.
7 y icipants in the
Islamic bankin, m taking int ments of the economy, the
reservation of lity of intenance_of health;
competition.
For pur 6 thi i i ¢ bankin
units of conventional banks, and foreign bani horized to conduct
business _in accordance with the principles of the Shari‘ah_shall be referred
llectively to as “Islami “Islami ing system”

Section 4. Supervision and Regulation by the Bangko Sentral ng Pilipinas. - The

BSP shall have supervision over the operations of and exercise regulatory powers
cover Islamic banks. The BSP shall issue the implementing rules and regulations

on Islamic banking.

Section. 5. Definition of Terms. - For the purposes of this Act, the following

definition of terms is hereby adopted:



Current account in relation to Islamic banking business and services means the
total deposits at the Islamic Bank which are repayable on demand;

Investment account in relation to Islamic banking business or services means the
{otal deposits at the Islamic Banks in respect of funds placed by a depositor or
investor with that Islamic Bank for a fixed period of time under an agreement to
share the profits and losses on the investment of such funds in accordance with
the principles and precepts of Shari'ah, including the sharing of profits and losses
with that Islamic Bank;

islamic banking business means banking business whose aims and operations do
not involve interest (riba) which is prohibited by the Shariah principles and
Ghich conducts its business transactions in accordance with the principles of
Shari'a

{slanic Banking Unit means a division, department, office or branch within the
conventional bank that conducts business in accordance with the principles and
precepts of the Shari'ah provided that the Bank shall have a__system for
segregating the transaction of the Islamic banking unit from the conventional

banking business;

Participation in relation to Islamic banking business and commercial operations
ans ‘any agreement or arrangement under which the mode of joint
investments or specific transactions shall not involve the element of interest
charge other than as percentage share in profits and losses of business and which
is otherwise conducted in accordance with the principles of Shari'ah;

Riba has the meaning assigned to it by Islamic law and jurisprudence as
expounded by authoritative sources; in the context of banking activities, the
term includes the receipt and payment of interest, including in the various types
of lending and borrowing and in the exchange of currencies on forward basic,

Savings account in relation to Islamic banking business and services means the
total deposits at the Islamic Bank which normally require the presentation of
Passbooks or such other legally acceptable documents in lieu of passbooks as
approved by the BSP for deposit or withdrawal of money; and

Share means share in the capital of the Islamic Bank or a corporation and
includes a stock, except where a distinction between stock and share. is
expressed or implied,

The Monetary Board may, by regulation, further define or clarify terms used in

this _Act consistent with the declared tate policies above and taking into
consideration the peculiar characteristics of Islamic banking,

Section 6, Purpose and Basis, ~The primary purpose of Islamic Banks shall be to
promote and accelerate the socio-economic development of the Nation by
Performing banking, financing and investment operations. and by establishing,

4


and participating in agricultural, commercial and industrial ventures based on
the Islamic concept of banking.

All business dealings and activities of an Islamic Bank shall be subject to the
basic principles and rulings of Shari'ah within the purview of. the
aforementioned declared policy.

Section Z._ Authorized Capital Stock.- The authorized capital stock of the AIB
shall be Ten billion pesos (P10,000,000,000).

The Board, upon the recommendation of the Secretary of Finance and with the
approval of the President of the Philippines, may request to increase the
authorized capital stock and total capitalization of AIB up to such amounts as
may be necessary to attain the objectives of this Act.

Section 8: Classification of Shares and Capital Structure - The AIB’s authorized
capital stock shall be classified as common shares including all existing paid-up
shareholdings at the time of approval of this Act. AIB may be allowed to issue
Preferred shares as recommended by the Board of Directors and after proper
clearance and approval _from the Monetary Board

Anyone of the existing shareholders _may exercise its preemptive right to
consolidate ownership of the outstanding shares as_hereinafter_increased.
brovided, that the common shares of the AIB which have been issued and
Sutstanding shall form part of the increased capitalization of the AIB, subject to
the concurrence of the existing shareholders of the AIB.

The ALB is hereby authorized by this Act to reacquire its common shares that are
held privately.

Section 9. Board of Directors; Composition; ‘Tenure; Per Diems — Unless
otherwise provided in this Act, the corporate powers of AIB shall be exercised, ite
business directed and its properties managed and preserved by a Board of
Directors consisting of at least five (5) but not more than nine (9) members, to be
appointed by the President of the Philippines. The Chairman of the Board and
the President of the Bank shall likewise be appointed by the President of the
Philippines from among the members of the Board of Directors; Provided, That
the position of Chairman of the Board and President of the Bank shall not be held
by the same person, The term of office of the Chairman, President and Members
of the Board of Directors shall be for a period of one year or until such time »

heir successors are appointed,

‘The Chairman shall preside at meetings of the Board and of the stockholders,

The President of the Bank shail be the Vice-Chairman of the Board, and as such,

5


shalll assist the Chairman and act in his stead in case of absence or incapacity. In
case of incapacity or absence of both the Chairman and the Vice-Chairman, the
Board of Directors shall designate a temporary Chairman from among ils
members.

Appointed members of the Board of Directors shall be subject to the fit and
proper rule of the Bangko Sentral_ng. Pilipinas andto-other_quallfication
Tequirements _as_prescribed by the Good Governance Commission
Jovernment-Owned_and_Controil \d_the Monetary
Board.

‘The per diems and other financial remuneration of the Board of Directors of AIB
ject to the rules an lati i

‘The Board of Directors shall convene at the principal office at least once every
month upon due notice by the Chairman or, whenever the need arises, upon the
request of three (3) members of the Board of Directors. The Board may convene
outside the AIB‘s principal office as the members shall determine in the bylaws
of AIB._AIB shall designate at least two (2) independent directors as required
under existing banking laws and regulations.

Section 10. Powers of the Board. - The Board of Directors shall have the broadest
powers to manage the Islamic Bank, except such matters as are explicitly
reserved to be determined at the general shareholders meeting. The Board shall
adopt policy guidelines necessary to carry out effectively the provisions of this
Act as well as internal rules and regulations necessary for the conduct of its
Islamic banking business and all matters related to personnel organization, office
functions and salary administration.

The Board of Directors shall have the power to appoint managers, authorize
agents or legal representatives and shall vest them with signing authority on
behalf of the Bank either severally or jointly in accordance with the operational
procedures of the Bank.

The Board shall cause the preparation of AIB’s financial statements according to
generally accepted accounting principles established and appropriate for Islamic
banking. Copies of the audited financial statements shall be provided to the
shareholders before the date of the general meeting.

Section. 11. President; Chief Executive Officer; Other Officers, Employees and

Units. - The President of AIB, who is also it He Chel Bers tive Officer of the Bank,

n in! ident ‘The President er
wi ther Bank Officers, must mé inimum requirements of the BSP
for fiers. Provi. in the event is privatized with at I

51 percent of its capital or ownership being held privately, the appointment_by

the Presi Philippi 1e President



‘The President shall, among other powers and duties, execute, carry out and
administer_the policies, measures, orders and_resolutions approved by the
Board; direct and supervise the operation and administration of the Bank; and
exercise such other posers and perform such other functions or duties as may be
directed to be assigned to him by law or by the Board from time to time.

Particularly, the President of AIB shall have the power and duty:

(a) To sign and execute all contracts concluded by the Bank and enter into all
necessary obligations required or permitted by this Act, upon proper
authorization by the Board; and sign all notes, securities, certificates and
other major documents of the Bank

(b) To exercise the powers of control and supervision over decisions and
actions of subordinate officers and all other powers that may be granted
by the Board;

(© To report to the Board the main facts concerning the operations of the
Bank and to recommend changes in policies which he may deem
advisable;

(d) To submit an annual report to the President of the Philippines on the
result of the operations of the Bank;

(e) _To recommend to the Board the appointment, promotion or removal of
all officers of the Bank, with the rank of at least Vice-President or its
equivalent;

() _To appoint, promote or remove employees and officers below the rank of
Vice President or its equivalent: Provided, that promotions, transfers,
assignments or reassignments of officers and personnel of the Bank are
personnel actions deemed made in the interest of the service and not
disciplinary, any provision of the Civil Service Law to the contrary
notwithstanding; and

(g) _As required by circumstances, to delegate any of his powers, duties or
functions to any officer of AIB, with the approval of the Board.

Section, 12, General Shareholders Meeting. - The general shareholders meeting
shall convene annually at the latest within six (6) months following the end of
the financial year of AIB at the place, date and time fixed in the notice for the
meeting. The attendance of shareholders. representing at least sixty per centum
(60%) of the capital of the AIB shall constitute a quorum to do business, The
purpose, date, place, the manner of giving notice and other matters relating to the
holding of the general shareholders meeting shall be provided for in the by-laws
f_AIB_in conformity with Section 20 of this Act, subject to the applicabl
provisions of the Corporation Code of the Philippines,

Section. 13. Purpose of General Meeting. - The general shareholders meeting
shall convene purposely to hear the Board of Directors’ report on the activities of
the AIB, its financial condition, the auditor's report, to approve the annual
financial statements, to determine the portion of dividends to be distributed to
the shareholders and the method of distribution, to appoint the auditors, and to
elect the members of the Shari'ah Advisory Council

7


For purposes of this section, “Capital” shall refer to the Total Subscribed Capital,
whether paid or unpaid.

Section, 14. Ordinary and Extraordinary Sessions. - The general shareholders
meeting, shall be presided over by the Chairman of the Board of Directors. All
resolutions adopted by the general shareholders meeting in ordinary session
assembled shall be taken by a vote of the shareholders representing at least a
majority of the outstanding shares and in case of votes being equal, the
Chairman shall cast his vote to break the tie, The resolutions of the general
meeting adopted in accordance therewith shall be binding on all shareholders
including those not in attendance or opposing the resolution.

An extraordinary general shareholders meeting shall be required to pass
resolutions related to the increase or decrease of capital of AIB, the extension of
its legal existence or matters affecting amendment of the Charter. Resolutions of
the extraordinary general meeting shall be deemed adopted when a majority
vote of at least sixty-six and two-thirds plus one per centum (66 & 2/3 + 1%) of
the capital shares shall have been cast.

In no case shall the general meeting resolve to modify the object of the Bank as
an Islamic Bank.

Section, 15. Bank Auditor: Reports. - Notwithstanding the provisions of any
existing law to the contrary, AIB is hereby authorized to appoint an external
auditor approved at the general shareholders meeting, whose qualification and
remunerations shall be fixed by the Board of Directors. The external auditor
appointed under this section shall assume his functions from the date of his
appointment until the date of the next general shareholders meeting. In case a
vacaney occurs any time during the year for any reason, the Board of Directors
shall immediately appoint a replacement.

The auditor shall conduct an audit of the accounts of the Bank and to make a
report to the Board of Directors.

In the exercise of his auditing functions, all Bank books, accounts and documents
shall be made available to the auditor for inspection to ascertain the Bank's assets
and obligations. Copies of the latest audited financial statements, and the
auditor's reports shall be forwarded by the AIB, within the prescribed time as
may be determined in the implementing rules and regulations, to the BSP.

Section. 16. Employee Share Schemes, - Subject to applicable rules_and
regulations issued by the BSP, the Board of Direclors may adopt an employee

profit sharing scheme under any of the following ways:

(1) Any arrangement under which the directors, officers and employees receive,
in addition to their salaries and wages a share, fixed beforehand, in the profits
realized by the AIB or by affiliate companies of the AIB to which the profit

8


sharing scheme relates; and

(2) Any arrangement under which AIB facilitates the acquisition by its directors,
officers and employees of common shares of stock either as share-incentives,
share-bonus options, or any other share-saving schemes as the Board of
Directors may determine,

No scheme shall be approved by the Board of Directors under this section unless
it is satisfied that the participant in the profit sharing scheme is bound by a
contract with the ALB by virtue of which an appropriation of shares has been
made for the purpose. The shares so purchased or appropriated shall be
deposited in escrow with the AIB.

The AIB shall then constitute the trustees of an approved scheme, whose
functions with respect to the common shares held by them are regulated by
Chapter IX of the General Banking Law of 2000 and other pertinent laws. The
terms of the approved scheme shall be embodied in a deed of instrument as the
Board may require.

Section. UF. Terms of Legal Existence. - The legal existence of the AIB shall be for
a period of fifty (50) years, from the date of the approval of this Act, renewable
upon resolution of the general shareholders meeting called for said purpose.

At the expiration of the AIB’s corporate existence or in the event of its
dissolution before this date, the general shareholders meeting shall, upon the
request of the Board of Directors, define the method of dissolution as provided
for in its by-laws.

Section. 18. Privatization. - Nothing in this Act shall be construed to preclude
the AIB from privatizing its ownership. For this purpose, any limitation on the
transfer of shares shall not be applicable with respect to. the exiting

shareholdings of the government or any of its instrumentalities,

In the event of privatization, the Bank shall be registered with the Securities and
Exchange Commission, and shall be subject to applicable provisions of the

Corporation Code of the Philippines, in addition to the rules and regulations of

the BSP and other government regulatory agencies,

Section 19. Statutory Articles of Incorporation. - This Act, upon its effectivity,
shall be deemed accepted for all legal intents and purposes as the Statutory
Articles of Incorporation of the AIB; and that notwithstanding the provisions of

isting law to the contrary, the AIB shall be deemed registered and duly
authorized to do business and operate as an Islamic Bank as of the date of
approval of this Act.

Section. 20. By-laws. - Within sixty (60) days upon effectivity of this Act, the by-
laws of the AIB for its organizational, functional and operational government
and procedure shall be adopted by affirmative vote at the general shareholders

9


meeting representing a majority of all subscribed capital stock entitled to vote,
whether paid or unpaid, subject to certification by the Monetary Board pursuant
to Section 14 of the General Banking Law of 2000.

The by-laws, duly certified by the Monetary Board as aforesaid, shall be signed
by the shareholders voting for them and shall be kept in the principal office of
the AIB, subject to the inspection of the shareholders during office hours, and a
copy thereof, duly certified by a majority of the directors and countersigned by
the Corporate Secretary of the ALB, shall be filed and registered with the SEC.

PART III - GENERAL PROVISIONS

Section 21. Shari'a Advisory Councils. - res]

‘The functions of the Shari
undertake reviews pertaining to the application of the principles and rulings of
the Shari'a but it shall not directly involve itself in the operations of the Islamic
Bank.

Section 22. Islamic Bank's Powers. - In addition to the general powers incident
to corporations, Islamic banks shall all have such powers as shall be necessary
and prudent to carry out the business of a bank in accordance with Shari'ah
principles.

Islamic banks may:

1.) perform the following banking services:

‘a accept or create demand deposits;

b. accept_saving accounts for safekeeping or custody with ticipation
in profit and losses except unless otherwise authorized by the account holders to
be invested

accept investment account placements and invest the same for a term with
the Islamic Bank's funds in Shari'ah compliant transaction on participation or
agency basis;
fe currency de|
e._act as correspondent of banks and institutions to handle remittances or

any fund transfers;

issue | i egotiate
niver o hari'ah compliant financial i 3

act as collectis insofar as the payment orders, bills of exchan;
other commercial documents are exclusive of riba or interest_prohibitions;

h, provide financing with or se sale and

i plus profit sal a nt
financing contracts and snakes
handle operations for is or comm financin,

10


warehouse receipts presented to the Islamic Bank;

j. issue shares for the account of institutions and companies assisted by the
Islamic Bank in meeting subscription calls or augmenting their capital and/or
fund requirements as maybe allowed by law:

k._undertake various investments in all transactions allowed by Shari'ah in
such_a_way that shall not permit the haram (forbidden), nor forbid the halal

permissible); an
___|._ such other banking services as may be authorized by the Monetary Board;

2)__with prior Monetary Board approval, issue investment participation
ertificates, s other Shari'ah compliant funding instrume be used
by the Islamic bank in its operations or capital notes;

of mudarabah,

partnership, musharakal joint venture or by decreasing participation, murabalah

urchasing of other cost-plus financing arrangement, se_(ijara
arrangements, construction and manufacture (istisna'a) arrangements, and other

Shari'ah compliant contracts and structures and to invest funds directly in
various projects or through the use of funds whose owners desire to invest

jointly with other resources available to the Islamic Bank on a joint Mudarabuh
basis in accordance with the foregoing arrangements, contract and structures;

4) with prior Monetary Board approval, invest in equities of the Shari'ah

compliant undertakings that directly support the delivery of Islamic banking
and financing services; and

5) To exercise the general powers of a Universal bank, that are consistent with
Shari'ah principles.

Section 23. Ownership and Legal Existence - Other Islamic Banks fo be created
under this Act shall comply with the requirements of applicable laws, rules and
regulations in the organization of a private corporation engaged in banking,
such as under the Corporation Code of the Philippines, and in compliance with
the requirements of the respective regulatory agencies

‘The total capitalization of other Islamic Banks shall be equivalent to_the
prescribed capitalization of a Universal Bank as prescribed by the BSP. The AIB
and other Islamic Banks may take the necessary steps to have shares listed in any

duly registered stock exchange,

‘The legal existence of other Islamic Banks created under this Act shall conform,
with the provisions of the Corporation Code of the Philippines.

he enactment and approval of the by-laws of other Islamic Banks shall conform
with the provisions of the Corporation Code of the Philippines and the rules and
regulations of the BSP and the SEC.

Section 24. Transfer and Acguisition of Substantial Shareholdings. - No person

W



shall acquire shares in an Islamic Bank that will result in ownership or control,
directly or indirectly, of more than ten percent (10%) of the voting stock of such
Islamic Bank, without obtaining the prior approval of the Monetary Board. Prior
to Monetary Board approval, 1no such transfer or acquisition of shares shall have

1 effect nor shall th recogniz ck ani fer books of
the Islamic Bank nor in the recardl of any government agency.

5. Fi P = er intail f Islamic bank

ment and affor: a ion to depositors, investors and th ic
in_general, t i ss upon and review the
ic i rectors or officers

isquallif; ni it. The Mon Board_shall_prescribe_thi
lifications of bank directors and officers for pur] is Act

Section 26. Regilatony Students _Islamic_banks shall_be licensed _and

egul: nal niversal bank,
‘The BSP shall specify prudential and conduct standards regulations to
promote:

(@ the sound financial position of Islamic banks; and
() integrity, professionalism and expertise in their conduct of the business,

These standards shall take into consideration international best practices and
principles relating to, but not limited to:

(a) capital adequacy;
‘(Miliquidity:

(c) corporate governance;

(a) risk management;

(e) related party transactions;

() maintenance of reserve funds;
(g) prudential reporting;

h) investment ceilings and limitations;
@ prevention of an institution from being used, intentionally or unintentionally,
for unlawful activities; and

consumer protection.

Section 2Y. Current Accounts of Islamic Banks, ~ The BSP is authorized to open

c ints for Islamic banks for settlemeni r pur nder such

rule: lations as the Moni ribe: Provided, that th
3P_may administrative and other fees for intenance of such

faciliti lowed under Shari'ah principl

Section 28. Financial Facilities for Islamic Banks. ~The BSP may, taking into

consideration the peculiar characteristics of Islamic banking, formulate rules and

R


regulations for the extension of financial facilities to Islamic banks for purposes
provided under Chapter IV, Articles IV and V of R.A. No. 7653.

[Subject to availability of budgetary support and other funding sources, the
Philippine Deposit Insurance Corporation (PDIC) extend financial
assistance to an Islamic bank determined to be in danger of closing in order to
prevent such closing or when it is determined by the Monetary Board and the
PDIC Board of Directors that the continued operation of such Islamic bank is

essential to maintain financial stability in the economy,

Section 29. Monetary Stabilization Policy and Tools, - Pursuant to the authority
of the Monetary Board under Section 61 of The New Central Bank Act to
constantly assess price developments and outlook and based on its analysis and
evaluation of inflationary pressures use its policy instruments to attain and
maintain price stability, the BSP, taking into consideration the peculiar
characteristics of Islamic banking, may require Islamic_banks to_maintain
reserves against their deposit accounts _and_funds held_in_trust_or_under
investment accounts. The Monetary Board may further identify other
appropriate instruments and measures necessary to effect its monetary polic
including whenever there are abnormal movements in the price level, provided
the peculiar characteristics of Islamic banking are taken into account,

Section 30. Tax Neutrality. - The Government shall endeavour to achieve
neutral tax treatment between Islamic banking transactions and equivalent
conventional banking transactions. The Bureau_of Internal Revenue (BIR)
pursuant to its rule-making power, shall issue policies and guidelines to
implement tax_neutrality conducive to the growth of Islamic banking and

finance in the country. To achieve tax neutrality, the BIR may modify applicable
taxes on Islamic banking transactions,

Section 31. Non-Applicability of Selected Acts. - In order to achieve the
international and domestic objectives of Islamic banking business, the provisions
of the following acts and laws shall not apply to the Islamic Banks to the extent
as herein rendered inoperative:

(1) The provisions of R.A. No, 7653, otherwise known as The New Central Bank
Act, and R.A, No, 8791, otherwise known as The General Banking Law of 2000,
with particular reference to the determination of bank interest rates, loans and
discounts, and any interest-bearing instruments or charge: provided, that
nothing contained herein shall be construed to impair the powers of the BSP to
supervise and regulate the activities of the Islamic banking system;

(2) The provisions of Presidential Decree 1445, otherwise known as “The General
Auditing Act” and any other enactments thereon inconsistent with this Act; ancl

(8) The provision of R.A. No. 3591, as amended, otherwise known as the “PDIC
Charter” and all laws, regulating insurance companies: provided, however, that
nothing contained herein shall preclude the Islamic Banks from the

2B


establishment of contemporary Islamic takaful (solidarity services) free of riba,
premiums or interests.

Section 32, Sanctions. - Any director, officer, employee, auditor, or agent of an Islamic
Bank who is found guilty of acts or omissions in violation of any provision of this Act
and its implementing rules and regulations shall be punished by a fine not exceeding
One million pesos (P1,000,000.00) or by imprisonment of not more than five (5) years, or
both at the discretion of the court, without prejudice to the administrative and criminal
sanctions that may be imposed pursuant to existing banking laws and regulations

Section 33. Consumer Protection and Capacity Building Program - The Government
shall provide programs for increased consumer awareness and capacity building
required by the expanded Islamic banking system.

Section 34, Repealing and Separability Clauses. ~ R.A. No. 6848 is hereby amended.

Alll acts, executive orders, administrative orders, proclamations, rules and regulations
or parts thereof inconsistent with any of the provisions of this Act are hereby repealed
or modified accordingly. If any provision or section of this Act or the application
thereof to any person, association or circumstances is held invalid, the other pertinent
provisions or section of this Act and their application to such person, association or
circumstances shall not be affected thereby.”

Section 2: Any provisions of existing law, rules and regulations inconsistent with the
provisions of this Act as to its application to Islamic Banking are hereby repealed and
modified accordingly. If any provision or section of this Act or the application thereof to
any person, association or circumstances is held invalid, the other pertinent provisions
or section of this Act and their application to such person, association or circumstances
shall not be affected thereby.

Section 3. This Act shall take effect fifteen (15) days after publication. Done in

Approved,

14