REPUBLIC OF THE PHILIPPINES
SEVENTEENTH CONGRESS
First Regular Session

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HOUSE OF REPRESENTATIVES

Via. noS9'75

Introduced by REPRESENTATIVE GLORIA MACAPAGAL ARROYO

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

EXPLANATORY NOTE.

The lack of effective access to responsive financing is one of the main challenges to the growth
and development of micro, small and medium enterprises (MSMEs) In the Philippines. This obstacle is
doubly experienced by out Filipino Muslim entrepreneurs in the ARMM/Bangsamoro region and in
different parts of the country with the absence of banking and financial services that are compliant with
the principles of Shari’ah or Islamic law.

Islamic banking and finance Involves the conduct of banking and finance operations consistent
with the principles of Shari'ah or Islamic law. In compliance with the Shari’ah , this kind of banking and
financing operations is characterized by risk-sharing and equitable distribution of wealth. Undertaking or
financing of anti-social and unethical businesses, and the setting of Interest or a fixed pre-determined
rate of return are prohibited.

Islamic banking and finance In the Philippines Is limited by three major challenges:

i Lack of a clear and regulatory framework for Islamic banking and finance, where our
existing laws do not provide for the policy for the policy infrastructure needed to enable

Islamic banks to thrive and current tax laws also subject Islamic financing products to more taxes;
2. Lack or scarcity of experts on Islamic banking and finance; and,

3. Lack or very low Investor awareness and acceptance of Islamic banking and finance.
According to the Banko Sentral ng Pi

component of the financial services Industry worldwide. It continues to grow by 21% des
challenging global context.

inas (BSP), Islamic banking Is the fastest growing
the



Currently, there are more than 600 Islamic financial Institutions operating In more than
75 countries and almost all major multinational banks offer Islamic financial services.

However, there is only one Islamic bank in the country ~ the Al-Amanah Islamic Investment Bank
of the Philippines, established In 1973.

Thus, it is high time to provide an environment where more of our IV entrepreneurs can thrive
and prosper, and tap their full potential to help develop the ARMM/Bangsamoro region and the whole

country as well

The Philippine Islamic Financing Act of 2017 seeks to help in addressing these challenges and
enhancing the legal and policy environment for the development of Islamic financing in the country.

The proposed measure further mandates government to provide programs for increased
consumer awareness and capacity building required by the expanded Islamic banking,

In viewing of the foregoing, the passage of this measure is earnestly sought.

GLOR{AMACAPAGAL ARROYO

District, Pampanga


REPUBLIC OF THE PHILIPPINES
SEVENTEENTH CONGRESS
First Regular Session

HOUSE OF REPRESENTATIVES

HB. no 3975

Introduced by REPRESENTATIVE GLORIA MACAPAGAL ARROYO

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

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Short Title - This Act shall be known as “The Philippine Islamic Financing Act of 2017.”

SEC. 2. Declaration of Policy. -The State, in Section 20 Article I of the Constitution, encourages
private enterprise and provides incentives to needed investments. Under the Constitution, the use of
property bears a social function so that the consequences in law must also be defined by policy
objectives related to property rights in productive enterprises. Toward this end, the Government has
committed itself to the establishment of Islamic banks, operating 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,


To promote and accelerate the socio-economic development of the nation, other Islamic banks
and designated Islamic banking units shall be created to perform banking, financing and investment
operations and establish and participate in agricultural, commercial and industrial ventures based on the
Islamic concept of banking.

SEC. 3. Definition of Terms. — For the purposes of this Act, the following terms shall mean:

a)

b)

co)

4)

f)

8)

h)

Current Account ~ The total deposits at the Islamic Bank which are repayable on demand,
In relation to Islamic banking business and services;

Investment Account ~ the total 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, In relation to Islamic banking business or services;

Islamic Banking Business ~the banking business whose aims and operations do not involve
interest (riba) which is prohibited by the Shari’ah principles and which conducts its business
transactions in accordance with the principles of Shari’ah ;

Islamic Banking Unit- 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- 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 , in relation to Islamic banking business and
commercial operation;

Riba- the receipt and payment of interest in the various types of lending and borrowing
and in the exchange of currencies on forward basis in the context of banking activities, in the
context of banking activities;

Saving Account- 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, in relation to Islamic banking
business and services; and

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


The Monetary Board may, by regulation, further define or clarify terms used in this Act
consistent with the declared state policies above and taking into consideration the peculi
characteristics of Islamic banking.

PARTI
ISLAMIC BANKING SYSTEM AND ITS PURPOSE

SEC, 4. Name, Domicile and Place of Business. ~ There is hereby created the Al-Amanah Islamic
Investment Bank of the Philippines, which shall be hereinafter called Amanah Islamic Bank (AIB). Its
principal domicile and place of business shall be in the Philippines.

SEC. 5. Establishment of other Islamic Banks. ~ The Bangko Sentral ng Pilipinas (BSP) may
authorize
the establishment of other Islamic banks.

The BSP may also authorize banks primarily engaged in conventional banking to engage in Islamic
banking arrangements, including structures, transactions and practices, through designated Islamic
banking unit within the bank.

The Monetary Board, under such rules as it may prescribe, may 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.

The Monetary Board may regulate the number of participants in the Islamic banking system
taking into account the requirements of the economy, the preservation of the stability of the system,
and the maintenance of healthy competition.

AIB, other Islamic banks, designated Islamic banking units of conventional banks, and
foreign banks that are authorized to conduct business in accordance with the principles of the Shari'ah,
shall henceforth —_be referred to collectively as “Islamic Banks” or the “Islamic Banking System”.

SEC 6. Supervision and Regulation by the Bangko Sentral ng Pilipinas. ~ The BSP shall have
supervision over the operations of and exercise regulatory powers over Islamic banks. The BSP shall issue
the implementing rules and regulations on Islamic banking.

SEC 7. 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 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.

PARTI
PROVISION GOVERNING THE AL-AMANAH ISLAMIC INVESTMENT BANK


SEC 8. Authorized Capital Stock. - The authorized capital stock of the AIB shall be Ten Billion
Pesos (10,000,000,000).

The Monetary 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.

SEC 9, Classification of Shares and Capital Structure. - The authorized capital stock of AIB 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 pre-emptive right to consolidate ownership
of the outstanding shares as hereinafter increased: Provided, That the common shares of the AIB which
have been issued and outstanding shall form part of the increased capitalization of the AIB, subject to the
concurrence of the existing shareholders of the AB

The AIB is hereby authorized by t

Act to reacquire its common shares that are held privately.

SEC. 10, Board of Directors, Composition, Tenure, Per Diems. — Unless otherwise provided in this
‘Act, the corporate powers of AIB shall be exercised, its 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 as their successors are appointed.

The Chairman shall pre:

je at meetings of the Board and of the stockholders.

The President of the Bank shall be the Vice-Chairman of the Board, and as such, shall assist the
Chairman and act in his stead in case of absence of incapacity. In case of incapacity or absence of both
the Chairman and the Vice-Chairman, the Board of Directors shall designated a temporary Chairman
from among its members.

Appointed members of the Board of Directors shall be subject to the fit and proper rule of the
BSP and to other qualification requirements as prescribed by the Good Governance Commission for
Government-Owned and Controlled Corporations (GCG) and the Monetary Board.

The per diems and other financial remuneration of the Board of Directors of AIB shall be subject
to the rules and regulations prescribed by the GCG

The Board of Directors shall convene as 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 AlB’s principal office, as the members shall


determine in the by-laws of AIB. AIB shall designate at least two (2) independent directors as required
under existing banking laws and regulations.

SEC.11 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 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 administr

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 preparations 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.

SEC.12. President, Chief Executive Officer, Other Officers, Employees and Units. - The President
of the AIB, who is also its Chief Executive Officer of the Bank, shall be appointed by the President of the
Philippines, The President, together with the other Bank Officers, must meet the minimum requirements
of the BSP for the Bank Officers: Provided, That in the event that AIB is privatized with the least fifty-one
percent (51%) of its capital of ownership being held privately. The appointment by the President of the
Philippines for the President/Chief Executive Officer shall no longer apply.

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 the 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;

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

c) 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;

4d) 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 of removal of all Officers of the
Bank, with the rank of at least Vice-President or its equivalent;


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

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

SEC.13, 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 timed fixed in the notice for the meeting. The attendance of the shareholders representing at
least sixty percent (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 of AIB in conformity with Section 20 of this Act,
subject to the applicable provisions of the Corporation Code of the Philippines,

SEC.14, Purpose of the General Meeting. - The general Shareholders meeting shall convene
purposely to hear the Boards 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.

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

SEC.15. Regular and Special 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 sessions 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 the shareholders including those not in attendance or opposing the resolution.

A special general shareholders meeting shall be required to pass resolutions related to the
increase or decrease or capital of AIB, the extension of its legal existence, or matters of 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 percent (66 & 2/3 + 1%) of the capital
shares shall have been cast.

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

SEC.16. Bank Auditor Reports. — Notwithstanding the provisions of any existing law of 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 vacancy 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 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 the ascertain the Bank’s assets and the 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.

SEC.17. Employee Share Schemes. ~ Subject to applicable rules and regulations issued by the BSP,
the Board of Directors 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 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-savings 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 AIB 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.

SEC.18. Terms of Legal Existence. - The legal existence of the AIB shall be for of period of fifty
(50) years, from the date of 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.

SEC.19. 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 existing 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.


SEC.20, 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 any existing 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,

SEC.21. By-laws. — Within sixty (60) days upon the 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 meeting representing a majority of all subscribed capital stock
untitled 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 inspections 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 AIB, shalll be filed and registered with the SEC.

PART Ill
GENERAL PROVISIONS

SEC.22. Shari'ah Advisory Councils. ~ It shall be the responsibility of an Islamic Bank to ensure its
compliance with Shari’ah principles. For this purpose, it shall constitute its Shari’ah Advisory Council,

The functions of the Shari’ah Advisory Council shall be to offer advice and undertake reviews
pertaining to the application of the principles and rulings of the Shari'ah but it shall not directly involve
itself in the operation of the Islamic Bank,

SEC.23. Powers of Islamic Banks. ~ 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 Sharl’ah principles.

Islamic banks may:

1) Perform the following banking services:

a) Accept to create demand deposits;

b) Accept savings accounts for safekeeping or custody with no participation in profit
and loses 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 participations or agency
basis;

d) Accept foreign currency deposits;

e) Act as correspondent of banks and institutions to handle remittances or any fund
transfers;

f) Accept drafts and issue letters of credit or letters of guarantee, negotiate notes
and bills of exchange and other evidence of indebtedness under the universally
accepted Shari'ah compliant financial instruments;



g) Act as collection agent insofar as the payment orders, bills of exchange or other
commercial documents are exclusive of riba or interest prohibition;

h) Provide financing with or without collateral by way of leasing, sale and leaseback,
cost ~ plus profit sales arrangements, and other Shari‘ah compliant financing
contracts and structures;

i) Handle storage operations for goods or commodity financing secured by
warehouse receipts presented to the Islamic Bank;

j) Issue shares for the account of institutions and companies assisted by the Islamic
Bank in meeting subscriptions calls or augmenting their capital and/or fund
requirements as maybe allowed By-law;

k)_ Undertake various investments in all transactions allowed by the Shari’ah in such a
way that shall not permit the Haram(forbidden), no forbid the Halal(Permissible);
and
I) Such other banking services as maybe authorized by the Monetary Board.

2) With prior Monetary Board approval, issue investment participation certificates, sukuk,
and other Shari’ah compliant funding instruments to be used by the Islamic Bank in its
operations or capital notes;

3) To carry out financing and joint investment operations by way of mudarabah partnership,
musharakah joint venture or by decreasing participations, murabahah purchasing of
others on a cost-plus financing arrangement, lease (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 Mudarabah basis in accordance with the foregoing arrangements, contracts and
structures;

4) With prior Monetary Board approval, invest and equities if the Shari'ah compliant
undertakings that directly support the delivery of Islamic banking and financing
services;

5) To exercise the general powers of a Universal bank, which are consistent with Sharl’ah
principles,

SEC. 24, Ownership and Legal Existence. ~ Other Islamic Banks to 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 to the provisions
of the Corporation Code of the Philippines.


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

SEC. 25. Transfer and Acquisition of Substantial Shareholdings, ~ No person shall acquire shares
in an Islamic Bank that will result in ownership or control, directly or indirectly, of more than ten percent
(210%) of the voting stock of such Islamic Bank, without obtaining the prior approval of the Monetary
Board, Prior to Monetary Board approval, no such transfer or acquisition of shares shall have legal effect.
nor shall the same be recognized in the stock and transfer books neither of the Islamic Bank nor in the
records of any government agency.

SEC. 26. Fit and Proper Rule. ~ In order to maintain the quality of Islamic bank management and
afford better protection to depositors, investors and the public in general, the Monetary Board shall
prescribe, pass upon and review the qualifications of persons who are elected or appointed bank
directors or officers and disqualify those found unfit. The Monetary Board shall prescribe the
qualifications of bank directors and officers for purposes of this Act.

SEC. 27. Regulatory Standards. — \slamic banks shall be licensed and regulated analogous to the
treatment accorded to a Universal bank.

The BSP shall specify prudential and conduct standards and regulations to promot.

a) The sound financial position of Islamic banks; and
b) Integrity, professionalism and expertise in their conduct if the business, affairs and
activities.
These standards shall take into consideration international best practices and principles relating
to, but not limited to:

a) Capital adequacy;

b) Liquidity;

<) Corporate governance;

d) Risk management;

e) Related party transaction;

f) Maintenance of reserve funds;

8) Prudential reporting;

h) Investment ceilings and limitations;

i) Prevention of an institution from being used, intentionally or unintentionally, for
unlawful activities; and

j) Consumer protection.

SEC, 28, Current Accounts of Islamic Banks. ~ The BSP is authorized to open current accounts for
Islamic banks for settlement and other purposes under such rules and regulations as the Monetary Board
may prescribe: Provided, That the BSP may charge administrative and other fees for the maintenance of
such facilities as may be allowed under Shari'ah principles.

SEC. 29. Financial Facilities for Islamic Banks. ~ The BSP may, taking into consideration the
peculiar characteristics of Islamic banking, formulate rules and 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 Philippines Deposit
Insurance Corporation (PIDC) may 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.

SEC. 30. 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 development 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 instrument and
measures necessary to effect its monetary policy, including whenever there are abnormal movements in
the price level, provided the peculiar characteristics of Islamic banking are taken into account.

SEC. 31. 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 of the country. To
achieve tax neutrality, the BIR may modify applicable taxes on Islamic banking transactions.

SEC.32. Non-Applicability of Selected Acts. ~ In order to achieve 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 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 the 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

ivities 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; and

3. The provision 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 establishment of the contemporary
Islamic takaful (solidarity services) free of riba, premium s of interest.

SEC.33. 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) 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,

SEC.34. 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.

SEC.35. Implementing Rules and Regulations. - The BSP, within sixty (60) days from the
effectivity of this Act, shall promulgate the necessary rules and regulations for the effective
implementation of this Act.

SEC.36. Repealing Clause. ~ Republic Act No. 6848 is hereby amended. All 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.

SEC.37. Separability Clause. ~ If any provision of this Act is declared invalid or unconstitutional,
the remaining parts or provisions are not affected shall be remain valid.

SEC.38. Effectivity. — This act shall take effect fifteen (15) days after its publication in the Official
Gazette or in two (2) newspapers of general circulation,

Approved,