Banks very rare species in ARMM

The Autonomous Region in Muslim Mindanao (ARMM) which groups Basilan, Lanao del Sur, Tawi-Tawi, Sulu and Maguindanao, has the smallest bank representation in the country, according to Bankers Association of the Philippines (BAP) President Lorenzo Tan.

With just 22 bank branches, the ARMM accounts for just 0.2 percent of the total banking system—a challenge that faces the Bangsamoro Basic Law (BBL), should it be passed.

The reason for the low banking industry presence could be due to the influence of Islam. Islam has many differences with Roman Catholicism, especially in banking. In Islam, usury is not allowed. If you allow a commercial or universal bank to lend to any local government unit in the area to build projects with a spread of 10 percent to 15 percent (the usual interest given by a UKB or TB), the process will be considered usury.

And in the case of bonds, generally a debt instrument, cannot also be used in ARMM due to the Islamic no-no on usury. Instead, Islam allows the sukuk, which is not a debt instrument. When an Islamic bank floats a sukuk, the bondholder automatically becomes a part-owner.

In a typical bank, if any business goes bankrupt, it will become the property of the bank, which has a high risk weight and these require higher need for capital. In short, Philippine banks cannot adhere to this type of bond, as it tends to bring down their capital adequacy ratio.

This is the main reason the estimated 8 million Muslims in the Philippines have no or very limited access to banking.

No less than the Tan said ARMM’s share in the Philippine economy and the number of bank branches are both lowest in the entire country, thus any benefit to be brought by the would-be implemented Bangsamoro deal is seen with little optimism.

“The ARMM accounts for 0.8 percent of the Philippine economy, the smallest share among the regions,” said Tan, also president of the Rizal Commercial Banking Corp.

He said most of the banks in the region are in Marawi City, considered the capital of ARMM and the main city of Lanao del Sur.

“ARMM has 18 universal and commercial banks, one thrift bank and three rural banks. One good news is that the Banko Sentral ng Pilipinas is drafting a general law to expand Islamic banking in the country,” said the BAP president, who is now on his third term.

The official said any plan to expedite loan facilitation and banking services in the region must be done expeditiously so people in the region can be assisted, especially in the areas of microfinance.

Bankers say the widespread poverty in the areas could be due to the absence of bank branches, which strikes business due to lack of credit.

“Banks main duty is to lend. if there are no entities to lend to the public has no avenue where to get funding for business,” BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. said.

In a report by the Philippine Statistics Office, it was confirmed that Maguindanao, Sulu, Tawi-Tawi, Basilan and Lanao del Sur, among the 25 poorest provinces in the Philippines.

Four other provinces on the list are also in Mindanao, but outside the ARMM.

According to a military official, one of the most bemedalled in the Armed Forces in the Philippines prior to his transfer to the Philippine National Police, said probably the culture of violence is one of the reasons banks are adamant to operate in the region.

“When we were guarding Camp Abu Bakr, we cannot afford to be just five or 10 soldiers. We need to be at least 100 at all times because even civilians have guns. It’s the culture, I think, and it’s not easy to erase that,” the official explained.

According to Tan, the best way to expedite growth in the region is let more banks open branches in the area.

He believes that once the BBL is enacted, the positive outlook that the region will develop will become a reality.

“Moody’s mentioned that the Comprehensive Agreement on the Bangsamoro should be credited positive to the Philippines. This could lead to more investments, business activities and bank branches in ARMM,” Tan said.

In a separate interview, Rural Bankers Association of the Philippines Executive Director Vince Mendoza said the uniqueness of the Shariah law makes it difficult for any bank to open a branch in the region. Jerry Maglunog