Philippines planning Islamic finance scheme to rebuild southern city

The Philippines’s southern Muslim region of Mindanao wants to use an Islamic finance-backed scheme to raise funds in order to recover and rebuild Marawi City which has been severely damaged in almost two months of violent clashes between the Philippine army and Islamic State (IS)-linked terrorist groups. Such a scheme should allow reconstruction efforts mindful of the Muslim culture and heritage of the city and would also open channels for monetary support and participation from the Middle East, an official said.Destruction in Marawi City is now substantial and a lot of buildings and large parts of the infrastructure lie in ruins, both owing to the destructive frenzy of IS fighters and to heavy artillery and airstrikes by the Philippine military in retaliation. Around 400,000 civilians are believed to have been displaced. Since the Philippine army as of late has had some success to push back the Islamist fighters and drive many of them out of the city, the government is already making plans for recovery although there is no clear indication yet when the fighting will end.However, despite the pledge of Philippine President Rodrigo Duterte to provide 20bn pesos ($396mn) from state emergency and disaster funds for a comprehensive master plan for Marawi’s reconstruction and rehabilitation, the regional Mindanao Development Authority (MinDA) said it is planning to propose an Islamic financing scheme to rebuild the city.Romeo Montenegro, director for investment promotion, international relations and public affairs of MinDA, said that officials and many residents want a financial scheme that was “sensitive to the culture of the region” once the rehabilitation programme for Marawi City starts since it would also include the city’s cultural and historical structures.Montenegro argued that there were core elements in Islamic finance specific to Muslim culture, and so a Shariah-compliant funding vehicle would help residents and artisans to “work well based on their culture and practices.”However, there are a few hurdles to the proposed Islamic finance recovery scheme for Marawi City, mainly of legal nature. The Philippines has just one Islamic bank – Al Amanah Islamic Investment Bank of the Philippines – which doesn’t operate as a full-fledged Islamic bank. The country has its own legislative charter and currently has no leeway in creating new funding vehicles within the existing regulation since Philippine lawmakers still have to enact a long-awaited general framework for Islamic banking, capital markets and insurance in the country. In the absence of this framework, the existing laws applicable to conventional banking would have to be considered for adopting terms and conditions suitable for Islamic recovery financing in the way of participation banking. All of this would need approval by the Philippine central bank, making the creation of an Islamic recovery fund for Malawi City a lengthy and complex process.Therefore, MinDA is calling for having the Islamic finance framework legislated right away in order to shorten the time and simplify the process of coming up with a specific Islamic financial scheme for the destroyed city. That way, Marawi City’s reconstruction could be the “pilot” for finally adopting an operational foundation for Islamic finance in the Philippines.And, most of all, such a funding scheme would also pave the way for Middle Eastern countries to participate in financial assistance, Montenegro said.“Once the Islamic banking framework is in place, we have a specific mechanism to fully implement Islamic finance in the Philippines,” he noted, adding that “this would be very viable for reconstruction efforts in Marawi City because entities and investors in the Middle East would want to channel more effectively their support via Islamic financial institutions.”The size of the Islamic reconstruction funding is not clear yet, but it would likely be close to that what the government has assessed it would need. In any case, it would accompany a government emergency loan programme for Marawi City residents and retirees through the country’s social security system.