Why we need to embrace Islamic finance
Big leaps have been made recently in terms of realizing financial inclusion and socioeconomic development. Last month, the Senate approved on third reading a bill authorizing the expansion of the Islamic banking system in the Philippines, which shall be under the supervision of the Bangko Sentral ng Pilipinas and regulated by the Monetary Board.
We wholeheartedly laud legislative efforts in establishing a concrete Islamic banking framework. As part of the broader umbrella of Islamic finance, we also see how, once enacted into law, this measure can support families affected by humanitarian crises — whether from natural hazards or conflict — so that they may access formal banking systems and become more financially secure. Marawi recovery efforts spotlight this point.
Last May was the second anniversary of the Marawi siege; violence and conflict displaced 98 percent of the total population of the city and badly affected nearby municipalities. A significant portion of the population was unbanked. Families forced to flee had to leave behind not just personal belongings but immovable investments, such as their homes and their lands. Host communities, too, buckled from the pressures of rapid movements because they did not have the services, infrastructure and markets to absorb thousands of families.
Recovery has been slow and full of challenges, particularly for those who could not access financial services. After all, it would be impossible to replace lost assets, make productive investments and mitigate shocks from emergencies, illness or injury without the necessary initial capital.
The ability to access quality financial services before, during and after emergency situations is key to communities’ resilience and the sustainability of preparedness and recovery efforts. Agencies involved in the recovery and rehabilitation of Marawi conflict-affected communities can maximize assistance in reviving the local economy and establishing a more sustainable business sector by considering an alternative financial system such as Islamic finance.
A key lesson learned by Oxfam and its partners in the provision of emergency cash transfers through Sharia-compliant digital mechanisms is that business and livelihood assistance must be inclusive, which means that community buy-in is nonnegotiable, and that strong networks of community support are imperative.
For example, the iAfford, or Inclusive and Affordable Financial Facilities for Resilient and Developed Filipino program, popularly called “ePuyot” in Marawi, addresses financial exclusion directly by being a source of identification and a convenient application of financial services without tedious bank requirements. When used beyond its prepaid feature, the ePuyot card will be the most cost-effective way for internally displaced persons (IDPs) to access funds and establish their credit score for subsequent formal enrollment in financial institutions, and can also motivate them to start or continue their entrepreneurial endeavors. It remains, to date, the most concrete mechanism available to Marawi IDPs in sparking viable financial transactions to support social and economic needs, thereby paving the way for micro, small and medium enterprise development.
Islamic finance, therefore, is not only an alternative financial system congruent with the values of Muslims, but is compatible as well with several development initiatives such as the establishment of reputable halal industries, raising capital for infrastructure in Mindanao (sukuk), liberalization of economic ties within the Brunei Darussalam-Indonesia-Malaysia-Philippines East Asean Growth Area corridor, and the provision of social protection and services support to the poor though zakat and sadaqah (charity funds).
Within the lens of Marawi rehabilitation, although identified as primarily catering to the religious sensitivities of the IDPs, Islamic finance is not merely considered as an exclusive funding source or access to capital. Understanding Islamic finance, together with strengthening financial literacy, can significantly contribute to boosting sustainable business development in the community.
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Maharlika Alonto, CPA, is an Islamic banking and finance professional from Mindanao who has exposure in business development, policy formulation and financial inclusion. She graduated from the University of Reading in the United Kingdom and the University of the Philippines. Maria Theresa Abogado is the Digital Financial Inclusion Lead (Philippines) of Oxfam, an international confederation of 19 organizations working together with partners and local communities in more than 90 countries.