The Islamic Bank as Investment House

By: Abdel Aziz Dimapunong
Chancellor, Islamic Banking Research Institute

Foreword

On these pages are copies of the following governing laws on the Islamic Bank as an Investment House:

(1) Presidential Decree No. 129, otherwise known as the Investment Houses Law, Approved: February 15, 1973.

(2) Batas Pambansa Bilang 66, An Act amending Presidential Decree No. 129, as amended. Approved: April 1, 1980

(3) Presidential Decree No. 1797, An Act further amending Presidential Decree No. 129, as amended, otherwise known as Presidential Decree No. 129, as amended. Approved: January 16, 1981

These laws are vital in conducting due diligence about the Islamic Bank. They provide the legal basis of certain acts of the chairman and the board of directors during the entire history of the Islamic Bank. Moreover, the Islamic Bank is more of an Investment House rather than a commercial bank.

Batas Pambansa Bilang 66 prohibits any person to be a director in any bank while being a director of an Investment House at the same time. This was the basis of the disqualification of directors of the Development Bank of the Philippines who were directors of the Philippine Amanah Bank at the same time. In the case of the Philippine Amanah Bank, it used to be that the chairman of the Development Bank of the Philippines sits as concurrent director and chairman of the Philippine Amanah Bank. This practice had no basis in law. It also had no basis in professional management. The only obvious reason for the directors of the Development Bank of the Philippines to sit concurrently as directors of the Philippine Amanah Bank was for them to receive more allowances and fringe benefits. To some professional Muslims, this practice was an affront because it seems to show that the Muslims can not run the management of a bank.

The prohibitions in Batas Pambansa Bilang 66 are echoed in Executive Order No. 81, otherwise known as the charter of the Development Bank of the Philippines. Section 5, E.O. 81 provides:

“Except for the chairman and the vice chairman of the Board, no officer or employee of the Bank (DBP) maybe appointed as a member of the Board of Directors of the Bank: nor shall any director, officer, or employee of any other bank be eligible as a member of the Board of Directors of the Bank. (Emphasis mine)”

When I was designated by the Office of the President of the Philippines to organize the Islamic Bank, I saw to it that the practice of concurrent directorship will not happen again. Aware of the prohibitions of Presidential Decree No. 129, as amended, and the prohibition under Executive Order No. 81, we disqualified the then chairman of the Development Bank of the Philippines, Mr. Roberto De Ocampo, to be elected as concurrent director of the Islamic Bank in the organizational election on April 28, 1992.

In order to set the precedence so that never again will the DBP lord over the Islamic Bank I filed a formal complaint on June 18, 1992 in the Office of the Ombudsman against Roberto De Ocampo. My complaint was against De Ocampo’s violation of law for having held concurrent directorship of the Development Bank of the Philippines and the Philippine Amanah Bank. The case was officially docketed as OMB-0-92-1279. This legal action was a follow up to my earlier complaint against De Ocampo earlier filed in Office of the Ombudsman. It was docketed as Case No. OMB-92-1278. This other complain concerns his attempt to be elected as concurrent director of the new Amanah Islamic Bank by means of a spurious stockholders meeting. Another case was officially filed on August 24, 1992, docketed as Case No. OMB-0-92-1706, against the same person and Ernesto Duran on the same issue but on the basis of another law, the provisions of RA 6848.

The cases I filed were not resolved until several years. Since then, no director of the Development Bank of the Philippines and other government banks dares to be elected as concurrent director of the Amanah Islamic Bank. The corporate tyranny of the DBP and the PNB over a bank for Muslims is gone. And we are on our own. This is something that the Muslims in the Philippines and elsewhere should be aware about.

Abdel Aziz Dimapunong

Manila, September, 5, 2006

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Introduction

The charter of the Islamic Bank provides that it is authorized to source for funds from governments, banks, organizations or other entities and individuals from within the Philippines or abroad. These funds are classified into commercial and investment accounts. Commercial accounts are those derived from deposits received by the Islamic Bank without authorization to invest. These accounts are to be treated as current accounts and savings accounts. They may be withdrawn by depositors wholly or partly at any time. The funders are referred to as mere depositors. They are not investors.

On the other hand, investments accounts are those funds that are sourced and received by the Islamic Bank with authorization to invest for a given period of time. They constitute the general pool of placements allocated for the investment portfolios of the Islamic Bank: The funders are referred to as investors. They are actually partners of the Islamic Bank. They are not depositors.

In the matter of investing funds from pooled resources, the Islamic Bank is acting in the capacity of an agent or attorney.

Under the charter, the Islamic Bank may allocate part of its own investible funds to finance investment projects and carry on its Islamic banking business directly or indirectly under its own supervision. For this purpose, it is authorized to develop, establish and finance investment companies or affiliates, which shall manage investment projects on behalf of and under the supervision of the Islamic Bank and for its own account.

In the tradition of Investment houses here and abroad, the main players in the business of investment banking are referred to as start-up companies.

The Islamic Bank ascertains the viability and soundness of investment projects by start-up companies. They may be projects which the bank may directly supervise or they may be projects in which the bank may participate with the general pool of investor's funds with authorization. The Islamic Bank supervises these projects.

The authority to operate as Investment House is provided under Section 17 of the charter of the Islamic Bank. Section 17 specifies that the authority of the Islamic Bank as an Investment House shall be “pursuant to Presidential Decree No. 129, as amended” By virtue of this authority, the Islamic Bank may carry on the following:

(1) The Islamic Bank may have a direct interest as a shareholder, partner, owner or any other capacity in any commercial, industrial, agricultural, real estate or development project under mudarabah form of partnership or musharaka joint venture agreement or by decreasing participation, or otherwise invest under any of the various contemporary Islamic financing techniques or modes of investment for profit sharing

(2) The Islamic Bank may carry on commercial operations for the purpose of realizing its investment banking objectives by establishing enterprises or financing existing enterprises, or otherwise by participating in any way with other companies, institution or banks performing activities similar to its own or which may help accomplish its objectives in the Philippines or abroad, under any of the contemporary Islamic financing techniques or modes of investment for profit sharing; and

(3) The Islamic Bank may perform all business ventures and transactions as may be necessary to carry out the objectives of its charter within the framework of the Islamic Bank’s financial capabilities and technical considerations prescribed by law and convention: Provided that these shall not involve any riba or other activities prohibited by the Islamic Shari’a principles.

Whenever the Islamic Bank operates as an Investment House and or as a Venture Capital Corporation, it is under the control and supervision of the Securities and Exchange Commission - rather than the Bangko Sentral.

The provisions of the charter in relation to the authority of the Islamic Bank to operate as an Investment House are echoed verbatim in the Rules and Regulations promulgated by the Bangko Sentral Ng Pilipinas for the Islamic Bank.

On October 21, 1997, PD 129 was amended by Republic Act No. 8366, otherwise known as An Act Liberalizing the Philippine Investment House Industry, amending certain sections of Presidential Decree 129, as amended, otherwise known as the Investment House Law. Under Republic Act No. 8366, it was declared a matter of government policy “to expand and strengthen the capital base of the economy in order to ensure sustained economic growth and development". "Toward this end', this law state, "the Philippine investment house industry is hereby liberalized, increasing foreign equity participation..."

Under Section 2 of RA 8366, Section 5 of PD 129, was amended to read as follows:

"Sec. 5. Citizenship requirements. - At lease forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in Investment Houses, the basis for the computation shall be the citizenship of each stockholders, and, if the stockholder is a corporation, the citizenship of the individual stockholders holding voting shares in that corporation."

Foreign nationals may now become members of the board of directors of an Investment House such as the Islamic Bank to the extent of their equity participation. This would be consistent with Section 38 of the charter which is aimed at achieving the international and domestic objectives of Islamic banking business”.

PRESIDENTIAL DECREE No. 129

GOVERNING THE ESTABLISHMENT, OPERATION AND REGULATION OF INVESTMENT HOUSES

WHEREAS, there were pending before Congress, prior to the promulgation of Proclamation No. 1081, dated September 21, 1972, urgent measures proposing the regulation of the so-called investment banks;

WHEREAS, an extensive survey and study of the Philippine financial system had been undertaken in order to determine its adequacy in Philippine economic development, and an integrated set of recommendations were submitted;

WHEREAS, the recommendations, as endorsed with modifications by the monetary authorities and made the basis of this Decree, advocated the enactment of the statutory framework within which the underwriting of securities may be governed and, to the extent that these entities perform quasi-banking functions, to harmonize their operations with national monetary goals.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 197, as amended, and in order to effect the desired changes and reforms in the social, economic, and political structure of our society, do hereby order and decree and make part of the law of the land the following:

Section 1. Title. This Decree shall be known as "The Investment Houses Law".

Section 2. Scope. Any enterprise which engages in the underwriting of securities of other corporations shall be considered an "Investment House" and shall be subject to the provisions of this Decree and of other pertinent laws.

Nothing in this Decree shall be understood to preclude other enterprises from engaging in the mere buying and selling of short-term securities of other persons or enterprises.

Section 3. Definitions. For the purpose of this Decree, unless the context otherwise indicates, the following definition of terms are hereby adopted:

(a) "Underwriting" is the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation.

(b) "Securities" are written evidences of ownership, interest, or participation, in an enterprise, or written evidences of indebtedness of a person or enterprise. It includes, but is not limited to the instruments enumerated in Section 2 of the Securities Act (Commonwealth Act No. 83, as amended).

Section 4. Organization and registration. Investment Houses shall be organized in the form of stock corporations.

The Securities and Exchange Commission shall not register the articles of incorporation of any Investment House, or any amendment thereto, unless it is satisfied from the evidence submitted to it:

(a) That all the requirements of this Decree and of existing laws or regulations to engage in the business have been complied with;

(b) That the proposed enterprise will not be in conflict with public interest and economic growth;

(c) That the amount of capital, the proposed organization, direction and administration, as well as the integrity, experience and expertise of the organizers and the proposed managerial staff, provide reasonable assurance that the enterprise will be conducted with financial prudence.

In determining compliance with the provisions of subsections (b) and (c) above, the Securities and Exchange Commission shall consult the Monetary Board of the Central Bank of the Philippines.

All applications for registration of the articles of incorporation of Investment Houses shall be accompanied by:

1. At least three copies of the proposed articles of incorporation; lawphi1.net

2. A statement under oath of the educational background and experience of the organizers, directors, and the proposed managerial staff, as well as in information on any position concurrently held by them in other financial or banking institutions, if any;

3. A projected statement of assets and liabilities of the proposed Investment House;

4. A tentative program of operation for one year, including its investment direction and volume; and

5. Such other information as the Securities and Exchange Commission may require in support of the application and to enable the Commission to determine the justifiability of establishing the proposed enterprise.

Any enterprise already in operation and exercising the powers of an Investment House prior to the effectivity of this Decree shall, within six months therefrom, file an information sheet with the Securities and Exchange Commission in such form and containing such data as the Securities and Exchange Commission may, at its discretion, require, to enable the Commission to determine, in consultation with the Monetary Board, whether the enterprise meets the requirements of this Decree.

Section 5. Citizenship requirements. The majority of the voting stock of any Investment House shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in Investment Houses, the basis for the computation shall be the citizenship of each stockholder, and, with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in that Investment House.

The majority of the members of the Board shall be citizens of the Philippines.

Section 6. Prohibitions. Except as may be authorized by the Monetary Board, no director or officer of an Investment House shall concurrently be a director or officer of a bank, as defined in Section 2 of the Republic Act No. 337, as amended: Provided, however, That in no event can a person be authorized to be concurrently an officer of an Investment House and of a bank.

No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended.

Section 7. Powers. In addition to the powers granted to corporations in general, an Investment House is authorized to do the following:

1. Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;

2. Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;

3. Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities;

4. Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offering or securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Act No. 83, as amended);

5. Promote, sponsor, or otherwise assist and implement ventures, projects and programs that contribute to the economy's development;

6. Act as financial consultant, investment adviser, or broker;

7. Act as portfolio manager, and/or financial agent, but not as trustee of a trust fund or trust property as provided for in Chapter VII of Republic Act No. 337, as amended;

8. Encourage companies to go public, and initiate and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, or recapitalization of productive enterprises, by providing assistance or participation in the form of debt or equity financing or through the extension of financial or technical advice or service;

9. Undertake or contract for researches, studies and surveys on such matters as business and economic conditions of various countries, the structure of financial markets, the institutional arrangements for mobilizing investments;

10. Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be necessary or appropriate to carry on its objectives and purposes;

11. Design pension, profit-sharing and other employee benefits plans; and

12. Such other activities or business ventures as are directly or indirectly related to the dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws, in which case the special law shall apply.

Nothing in this section shall preclude other enterprises not covered by this Decree from engaging in the activities listed under subsections (3) to (11) of this section, except as may otherwise be governed by special laws.

Section 8. Capital. The minimum initial paid-in-capital of any Investment House shall be twenty million (P20, 000,000) pesos.

Section 9. Credit policies. Investment Houses shall coordinate their credit policies with the general credit policies of the Monetary Board of the Central Bank.

Section 10. Reports. Investment Houses shall submit to the Securities and Exchange Commission and to the Central Bank a semi-annual report of operations and financial condition, signed under oath by its chief accountant and verified by its president.

The Securities and Exchange Commission may, at its discretion, require Investment Houses to include their underwriting commitments as contingent accounts in their financial statements.

Section 11. Regulations. Within six months after the approval of this Decree, the Securities and Exchange Commission, in coordination with the Central Bank, shall promulgate the necessary rules and regulations implementing the provisions of this Decree.

Section 12. Central Bank regulatory powers. Investment Houses shall be subject to such regulations of the Central Bank or non-bank financial intermediaries as may be promulgated pursuant to Section 2-B of Republic Act No. 337, as amended. The regulations which may include, but need not be limited to (a) minimum size of fund acceptance or receipt, (b) methods of marketing and distribution, (c) terms of placement and maturities, and (d) uses of funds may be modified by the Monetary Board insofar as they apply to Investment Houses.

The Monetary Board may, at its discretion, determine whether Investment Houses may be permitted to perform quasi- banking functions as defined in Section 2-D, subsection (b) of Republic Act No. 337, as amended. The Monetary Board is hereby authorized, at its discretion, to require any enterprise which is engaged or proposes to engage in quasi-banking functions to incorporate as an Investment House. If the Monetary Board decides to permit Investment Houses to engage in quasi-banking functions, the Board may require as a condition precedent the obtaining of a certificate of authority for the purpose from the Monetary Board.

Whenever the Monetary Board authorizes an Investment House to engage in quasi-banking functions, in accordance with the provisions of this section, the Board may subject Investment Houses to further regulations, pursuant to Republic Act 337, as amended, which may include but need not necessarily be limited to (a) liquidity reserve requirements; (b) capital-to-risk assets ratios; (c) interest rate ceilings; and (d) such other constraints as the Board may deem necessary.

In the exercise of its authority in this section, the Monetary Board may, whenever, it determines that the circumstances so warrant subject an Investment House to special examination.

Whenever on the basis of the reports submitted by, or upon examination of the books and records of, an Investment House, the Central Bank finds that the Investment House is not complying with the provisions of this section, with the pertinent provisions of this Decree, of other laws, or of orders, instructions, rules or regulations issued by the Monetary Board pertaining non-bank financial intermediaries and quasi-banking activities, said Board shall forthwith issue a cease-and-desist order upon the Investment House concerned. Failure on the part of an Investment House to comply with the cease-and-desist order shall subject said Investment House to a fine not exceeding two hundred (P200) pesos for every day the order is violated, to be imposed by the Monetary Board, without prejudice to the penalties provided in Section 16 of this Decree.

Section 13. Applicability of Securities Act. An Investment House may engage in the business of a dealer or a broker under the Securities Act without obtaining a separate license for the purpose as required in Section 14 of the Securities Act (C.A. No. 83, as amended).

Section 14. Applicability of Corporation Law. The provisions of the Corporation Law (Act No. 1459, as amended) insofar as they are not in conflict or inconsistent with the provisions of this Decree shall apply to Investment Houses

Section 15. Transitory provisions. Existing enterprises which are operating as Investment Houses shall, within one year following the approval of this Decree, comply with the requirements hereof, except with respect to the filing of an information sheet which shall be complied with within six months as provided in the last paragraph of Section 4 of this Decree.

Section 16. Penalties for violation. Upon proof that an Investment House is violating or not complying with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission or by the Central Bank of the Philippines, the Securities and Exchange Commission shall impose upon the Investment House and collect a fine not exceeding two hundred (P200) pesos per day for every day during which such violation or non-compliance continues, and/or suspend its certificate of registration. The officer or director of the Investment House who ordered or authorized the violation or non-compliance shall be solidarily liable. The fine so imposed shall be paid to the Government of the Philippines through the Securities and Exchange Commission.

Without prejudice to the provisions of the preceding paragraph any person, or any director or officer of an Investment House who violates or does not comply with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission or by the Central Bank of the Philippines, shall be punished by a fine of not more than twenty thousand (P20,000) pesos, or an imprisonment of not more than five years or both, at the discretion of the Court.

Section 17. Separability clause. The provisions of this Decree are hereby declared separable, and if any clause, sentence, provision or section hereof, or its application to any person or circumstance should be declared invalid, such invalidity shall not affect the other provisions of this Decree which can be given force and effect without the provisions which have been declared invalid

Section 18. Repeal. All Acts and existing laws inconsistent with this Decree are hereby repealed.

Section 19. Effectivity. This Decree shall take effect immediately.

Done in the City of Manila, this 15th day of February, in the year of Our Lord, nineteen hundred and seventy-three.

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BATAS PAMBANSA BILANG 66

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AN ACT AMENDING PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW"

Section 1. Section 6 of Presidential Decree No. 129 is hereby amended to read as follows:.

"Sec. 6. Prohibitions. — Except as may be authorized by the Monetary Board, no director or officer of an Investment House shall concurrently be a director or officer of a bank, as defined in Section 2 of Republic Act No. 337, as amended: Provided, however, That in no event can a person be authorized to be concurrently an officer of an Investment House and of a bank except where the majority or all of the equity of the Investment House is owned by the bank.

"No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended."

Sec. 2. Section 7 of the same Decree is hereby amended to read as follows:

"Sec. 7. Powers. — In addition to the powers granted to corporations in general, an Investment House is authorized to do the following:

"(1) Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;

"(2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities;

"(3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities;

"(4) Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offering of securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Commonwealth Act No. 83, as amended);.

"(5) Promote, sponsor, or otherwise assist and implement ventures, projects and programs that contribute to the economy's development;

"(6) Act as financial consultant, investment adviser, or broker;

"(7) Act as portfolio manager, and/or financial agent;

"(8) Encourage companies to go public, and initiate and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, expansion or recapitalization of productive enterprises, by providing assistance or participate in the form of debt or equity financing or through the extension of financial or technical advice or service;

"(9) Undertake or contract for researches, studies and surveys on such matters as business and economic conditions of various countries, the structure of financial markets, the institutional arrangements for mobilizing investments;

"(10) Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be necessary or appropriate to carry on its objectives and purposes;.

"(11) Design pension, profit-sharing and other employee benefits plans;

"(12) Such other activities or business ventures as are directly or indirectly related to the dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws, in which case the special law shall apply;

"(13) Subject to prior approval by the Monetary Board, the provisions of Chapter IV of the Central Bank Charter, and such rules and regulations as may be issued by the Monetary Board, engage in foreign exchange operations which the Monetary Board identified as directly related under Subsection 8 of this section; and

"(14) Act as trustee of a trust fund or trust property, subject to the provisions of Chapter VII of the General Banking Act.

"Nothing in this section shall preclude other enterprises not covered by this Decree from engaging in the activities listed under subsection (3) to (11) of this section, except as may otherwise be governed by special laws."

Sec. 3. The same decree is hereby amended by adding a new section after Section 7 to read as follows:

"Sec. 7-A. Subject to applicable laws and regulations and with prior approval of the Monetary Board, an Investment House may be converted into a commercial bank authorized to operate under an expanded commercial banking authority pursuant to Section 21-B of Republic Act No. 337, as amended.".

Sec. 4. All Acts or parts thereof inconsistent with this Act are hereby repealed or modified accordingly.

Sec. 5. This Act shall take effect upon its approval.

Approved: April 1, 1980

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Presidential Decree No. 1797

AMENDING FURTHER PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS "THE INVESTMENT HOUSES LAW".

WHEREAS, there must be greater cooperation among governmental agencies to ensure the accomplishment of desired objectives;

WHEREAS, there is a need to provide flexibility to government authorities in setting the capitalization requirement for investment houses in order to enhance the capability of the latter to compete and to finance the requirements of economic development.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby decree and order as follows:

Section 1. The third paragraph of Section 4 of Presidential Decree No. 129, as amended, is hereby amended to read as follows:

In determining compliance with the provisions of subsections (b) and (c) above, the Securities and Exchange Commission shall consult with and act pursuant to such recommendation as the Monetary Board of the Central Bank of the Philippines may make.

Sec. 2. Section 8 of the same Decree is hereby amended to read as follows:

"Sec. 8. The minimum initial paid-in capital of any Investment House shall be Twenty Million (P20,000,000) Pesos: Provided, That the Monetary Board of the Central Bank may prescribe a higher minimum capitalization if warranted by the circumstances..

Sec. 3. The first paragraph of Section 16 of the same Decree is hereby amended to read as follows:

"Sec. 16. Penalties for violation. — Upon proof that an Investment House is violating or not complying with the provisions of this Decree, of other pertinent laws, of the terms or conditions of its certificate of registration or charter, or of orders, decisions, rulings or regulations issued by the Securities and Exchange Commission, the Commission shall impose upon the Investment House and collect a fine of not exceeding two hundred (P200.00) pesos per day for every day during which such violation or non-compliance continues, and/or suspend its certificate of registration. The officer or director of the Investment House who ordered or authorized the violation or non-compliance shall be solidarily liable. The fine so imposed shall be paid to the Government of the Philippines through the Securities and Exchange Commission.

Sec. 4. All laws, decrees, rules and regulations inconsistent with this Decree are hereby repealed or modified accordingly.

Sec. 5. This Decree shall take effect immediately.

Done in the City of Manila this 16th day of January, in the year of Our Lord, nineteen hundred and eighty-one.

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REPUBLIC ACT NO. 8366

AN ACT LIBERALIZING THE PHILIPPINE INVESTMENT HOUSE INDUSTRY, AMENDING CERTAIN SECTIONS OF PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS THE INVESTMENT HOUSES LAW

SECTION 1. Declaration of policy. — It is the policy of the State to expand and strengthen the capital base of the economy in order to ensure sustained economic growth and development. Toward this end, the Philippine investment house industry is hereby liberalized, increasing foreign equity participation and raising the minimum capitalization of investment houses to enable them to meet the present and future demands of the market.

SECTION 2. Section 5 of Presidential Decree No. 129, as amended, otherwise known as the Investment Houses Law, is hereby further amended, to read as follows:

SEC. 5. Citizenship requirements. — At least forty percent (40%) of the voting stock of any Investment House shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in Investment Houses, the basis for the computation shall be the citizenship of each stockholder, and, if the stockholder is a corporation, the citizenship of the individual stockholders holding voting shares in that corporation. In approving foreign equity applications in Investment Houses, the Securities and Exchange Commission [underscoring ours] shall approve such applications only if the same or similar rights are enjoyed by Philippine nationals in the applicant's country.

Foreign nationals may become members of the board of directors to the extent of the foreign participation in the equity of said enterprise.

SECTION 3. Section 8 of the same Decree is hereby amended to read as follows:

SEC. 8. Capital requirements. — In the case of newly-organized Investment Houses, the minimum paid-in capital shall be Three hundred million pesos (P300,000,000). The minimum paid-in capital of the existing Investment Houses shall be Three hundred million pesos (P300,000,000) to be built up in two (2) years after the effectivity of this Act in the following manner: Two hundred million pesos (P200,000,000) after the effectivity of this Act and an additional Fifty million pesos (P50,000,000) for every year thereafter until the minimum capitalization is attained. The Monetary Board may prescribe a higher minimum capitalization in order to promote and ensure the stability of the Philippine capital market and the competitiveness of the investment house industry in line with the national economic goals. The Monetary Board shall, within six (6) months, prescribe a risk assets to capital ratio and other capital adequacy ratios in order to provide broader protection to the investing public.

SECTION 4. This Act shall take effect fifteen (15) days from its publication in a newspaper of general circulation.

Approved: October 21, 1997

© 2006 Islamic Banking Research Institute, Inc. “Islamic Bank as Investment House” September Ed., by Abdel Aziz Dimapunong is a property of the Islamic Banking Research Institute, Inc. All rights reserved. Except for a copy of the laws that are cited in this journal, reproduction of any other content, text or image, of this writing, in any form or medium without the express written permission of the writer or the Islamic Banking Research Institute Inc. is prohibited This journal is for informational purposes only and is intended solely for the benefit of persons who might be aware of investment opportunities. The services provided by the Islamic Banking Research Institute, Inc. are only for research and information.

Privatizing the Amanah Islamic Bank

By: Abdel Aziz Dimapunong
Founding chairman, 1992-1998
Amanah Islamic Bank

Chancellor, Islamic Banking Research Institute

Peace and greetings to everyone. Al hamdullilah. It has been fifteen (15) years since we officially organized the Al Amanah Islamic Investment Bank of the Philippines, or Islamic Bank for short. May I congratulate the board of directors, most especially the incumbent chairman, Mr. Grande M Dianaton for having maintained themselves on their saddles.
I had been asked to say some words about the background of the Islamic Bank privatization. As a founding chairman, and after having served the Islamic Bank from 1992 to 1998, I always have many things to say about the Islamic Bank and about Islamic banking in the Philippines.
I am sure that the business sector including banking and finance will remember most of what I have to say today. Before the fall of President Ferdinand Marcos, he issued two successive Presidential Decrees, PD 2029 and PD 2030. These two Decrees declared privatization as a matter of national policy. Privatization was actually an implementation of the Structural Adjustment Program that was imposed by the International Monetary Fund and the World Bank.
On February 1986, President Cory Aquino succeeded Marcos by the popular people power. Aquino pursued vigorously the implementation of the privatization laws. In addition to PDs No. 2029 and 2030, Aquino signed into law Proclamation No. 50, creating the Committee on Privatization (COP) and the Assets Privatization Trust (APT) to administer the implementation of privatization.
In 1989, the Congress of the Philippines passed into law R. A. 6848. Former Pres. Corazon C. Aquino signed this special law on January 26, 1990 for the special privatization of the new Al Amanah Islamic Investment Bank of the Philippines (AIIBP).
On June 25, 1991, I was designated by the office of the President of the Philippines to organize this bank pursuant to the provisions of its charter.
It is to be noted carefully that the new Al Amanah Islamic Investment Bank of the Philippines was not the same entity as the then Philippine Amanah Bank. (PAB). They were two different banks. One then existed. That was the PAB. The other was yet to be organized. That was to be the AIIBP.
Under the%2

Islamic Banking in Philippines

By: Abdel Aziz Dimapunong

In the Philippines, we are comfortable to say that we are among the founders of Islamic banking. The late Senator Mamintal A. Tamano started to conceptualize a Muslim bank in the Philippines as early as 1971. That was the time Islamic banking was in its infancy stage. Although some scholars claimed that Islamic banking started in the late 1950s, others insisted that it actually goes back to the sixties. But it is quite popular to claim that it was only in 1972 that stable Islamic banks were established in Egypt. They were the Nasser Social Bank of Egypt and the Faisal Islamic Bank of Egypt.

As a legislator, Senator Mamintal Tamano intended to sponsor a bill for the passage of a charter of what he initially called as the Philippine Muslim Bank (PMB). I was then a working student, and I was a registered employee of the Senate under the Office of Senator Tamano, then chairman of the Senate Committee on Banks and Currencies. And I was privileged to have typewritten Tamano’s drafted bill for the charter of PMB. This draft did not materialize into a law because just as soon as the proposed charter was drafted, martial law in the Philippines was declared by Pres. Ferdinand Marcos. The entire Congress (includes the Senate) of the Philippines was abolished.

In later part of 1972, Senator (this time already ex-Senator) Tamano made some revisions to the proposed charter. The name was changed from Philippine Muslim Bank to Philippine Amanah Bank. The draft format was changed into a presidential decree format without a trace to Tamano. The Senator asked me to deliver the draft to a member of the Marcos Cabinet who was among his close friends. I delivered the final draft to Tamano’s friend in the Palace. The following year it became the Presidential Decree No. 264, otherwise known as the Charter of the Philippine Amanah Bank.

The early seventies was the age of the oil phenomenon. Enthusiasm on Islamic banking shifted from Egypt to Saudi Arabia. The pioneering Islamic banker was HRH Prince Mohammed al Faisal Al Saud. To his credit, the Islamic Development Bank of Jeddah, Saudi Arabia was established. He was also the founder of the Faisal chain of Islamic banks and financial institutions. Among these were: the Faisal Islamic Bank of Egypt, Faisal Islamic Bank of Sudan, Faisal Islamic Bank of Kibris, Masraf Faisal Al Islami Bahrain, Masraf Faisal Al Islami Niger, Masraf Faisal de Guinee, Fasraf Faisal de Senegal, Islamic Finance House, Faisal Finance Institution (Istanbul), and the Dar Al Maal Al Islami in the Bahamas. Another Islamic banker from Saudi Arabia was Sheikh Saleh Abdullah Kamil, a prominent businessman, and founder of the Al Baraka Group of companies. He was very closely related to Prince Faisal Al Saud. Sheikh Kamil was also a founder of a chain of Islamic financial institution. Among them were: the Al Baraka Al Sudani, Al Baraka Bank Bahrain, Al Baraka Turkish Finance House in Istanbul, Al Baraka Islamic Bank Mauritania, Al Baraka Investment Company in London, Al Baraka Finance House in London, Al Baraka International in London, and Al Baraka Banking Corporation in Houston, Texas.

Our Philippine Amanah Bank was followed in 1975 by the first Islamic bank in the Middle East which was chartered in the United Arab Emirates. That was the Dubai Islamic Bank.

In the 1970s, there was no clear legal definition of what Islamic banking means. At least, this was the case in the Philippines. Sharia’ counsels were not popular then. In the Philippines, Islamic banking was not even mentioned in the General Banking Law or the Central Bank Act. There was no reference to Islamic banking. There were no rules and no regulation specific for Islamic banking. People simply thought that by being called Amanah bank, Al Amanah Bank, or any Arabic named bank with Moslem officers and holding branches in predominantly Muslim areas, such a bank could already be branded as an Islamic Bank.

In the 1980s, the Ulama counsels (i.e., the Islamic scholars) were already complaining about misleading the general public, making them believe that the Amanah Bank was Islamic Bank. They insisted that charging interest is violative of Islamic tenets. So, in 1986 the Majlis Da’wah Philippine Al Islami was formally organized by then Mohammad Mauyag Tamano, then Philippine Ambassador to Saudi Arabia. One of the objectives of this organization was to clamor for the establishment of a truly Islamic Bank in the Philippines. That means banking sans interest rates. This organized move was partly inspired by Malaysia’s successful passage in 1983 of its Islamic Bank Act 1983, and by the eventual establishment of the Bank Islamic Malaysia Bhd on July of that year. This bank was designed to cater for the banking of Malaysia’s predominantly Muslim population who perceive the western banking to be inappropriate for their needs as Muslims.

By 1987, there were already thirty-three Islamic banks in the Islamic countries and nine others in the western world. In 1988, the charter of the Al Amanah Islamic Investment Bank of the Philippines was also drafted. By this time, the Philippine Amanah Bank was already perceived to be a total failure. Actually, it was already bankrupt.

To abolish and replace the PAB with a Sharia’ compliant bank, a special law, Republic Act No. 6848 was enacted in 1989. In the formulation of this law, the international Muslim bankers were consulted. Dr. Abdullah Omar Nasseef, then Secretary General of the World Muslim League, was among those consulted. Prominent Muslim bankers like Shiek Hassan Kamel and the Al Baraka Group had also been asked for advice.

The enactment of RA 6848, the charter of the Al Amanah Islamic Investment Bank of the Philippines was a very important development in the area of international banking. In the years to follow, the Islamic Bank charter was believed to be a model legal framework for Islamic banking and finance that could be adopted by other countries. This charter is applicable to any country whether it belongs to the World of Muslims or to the Western World.

Today, the principles of Islamic banking now reverberate not only in the global banking industry but also in many sectors of the business world and some academies of higher learning. The ethical standards of review that are now being introduced by the so called Sharia’ advisory counsels, such as the one provided in the Islamic Bank charter, is now being adopted by western business entities.

The Sharia’ advisory boards not only consider the conventional project viability and feasibility – but they also look beyond the traditional way. This is the “Sharia’” standard which could include appropriateness, fairness, trust, transparency, the ethical nature of transactions, as well as social responsibility, especially to the poor, the wayfarer, those afflicted with illness, victims of calamities such as the “Tsunami”, and all those in need. That is why the charter provides for “zakat” or tithe. It also provides for “Qard Al Hassan” which means benevolent loans. A “zakat” is paid by every God-fearing believer for the benefit of the poor and the needy. A benevolent loan (qard al Hassan) does not bear interest and repayment may not be expected. It is provided as a loan in much the same manner as a developed country providing development assistance to an underdeveloped country. It is being practiced by the government of the United States of America through the USAID. It is also being done by the government of Japan through JICA. In the Philippines, it is being done by the government of Australia through its Direct Aid Program (DAP). These foreign nations are providing benevolent loans and financial assistance without them knowing that these loans are in the form of “qard al Hassan”. If these benevolent loans are done with intent to be in accordance with “Sura Tagabon” (a chapter in the Holy Qur’an), then it qualifies as “qard al Hassan”.

All business dealings with Islamic banking, finance, trade, commerce, and, in fact all about Islamic economics, can be found in a common reference of all Muslims of the World today and tomorrow. This is the standard under Sharia’. It is common to all Muslims around the World. It is a standard that will never change for all time. That is a fact about Sharia. Its foundation, the Holy Qur’an will never change. The Hadith likewise will never change. Any deviation from the standard that was set by the Holy Qur’an and the Hadith is called “bida’a” and it will be rejected by any real Sharia’ counsel. Said “Bida’a“or deviation from standard will be returned to innovators. There is no compromise. For instance, interest charges maybe disguised as bank charges. This kind of deviation will not be honored by any real Sharia’ counsel. Islamic banking under the principles of Sharia’ represents a standard way of economic life. Muslims and non-Muslims alike will learn from these moral standards in all business deals. .

In its mandate to formulate the rules and regulations for the Islamic Bank, the Monetary Board in the Philippines was required by law under Section 48 of RA 6848 to observe “the universal principle of the Islamic Sharia’”.

Paramount of this significant development in international banking is the fact that the Muslim way of doing business is gaining understanding and acceptance in the world of business. This could be the start of international harmony among nations.

Today, even the Federal Bank of USA acknowledges Islamic finance as an important development in international banking. That is according to William L. Rutledge, Exec. V P of the Federal Reserve Bank of New York, in his “Remarks at the 2005 Arab Bankers Association of North America (ABANA) Conference on Islamic Finance: Players, Products & Innovations in New York City... He further said that as US regulators, they “are open to Islamic financial products” within the U.S. structure.

The charter of the Islamic Bank provides for a Sharia’ Advisory Counsel to review transactions of the bank in accordance with the Sharia’ standards. The law also provides that the Board of Directors shall sit as a Board of Arbitration to settle intra-corporate disputes among shareholders and investors. To implement this mandate, the Board of Directors was authorized by this law to set the rules and procedure that it shall follow in the arbitration while the Monetary Board was mandated to formulate the rules and regulation

The bank was formally organized on April 28, 1992. Soon after, the Rules of Practice and Procedure before the Board of Arbitration was adopted and promulgated by the Board of Directors. Even if it was rather late, the Monetary Board also issued the Implementing Rules and Regulation (IRR) for the Islamic Bank under BSP Circular 105.

Exactly ten years after its adoption today, the thickness of the IRR is back to the thinness of what it should have been. Today, with some exceptions the IRR is back to being the image-file of the charter of the Islamic Bank. It should now be known as the New Rules and Regulations (NRR) reflecting the new laws of the Millennium in the Philippines, such as the New Central Bank Act, and the New General Banking Law of 2000. And a new development in international banking and finance.

When the IRR for the Islamic Bank was formulated by the Monetary Board in 1996, it includes all sort of rules and regulations applicable to all banks in general including the receipt and payment of interests (riba) which is what the charter prohibits, made illegal and punishable. The rules and regulations applicable to the conventional banks under the old General Banking Act, RA 337 was also made part of the IRR for the Islamic Bank. Sad to say, the Monetary Board in the Philippines never had a Muslim member. The Monetary Board cannot be blamed for something they are not familiar with. Consequently, the Islamic Bank regular lobbyists, namely: the Filipino Muslim Chamber of Agriculture and Fisheries, Inc., ( a major stockholder of the Islamic Bank) and the National Alliance of Muslim NGOs of the Philippines lobbied in Congress relentlessly to remove, revise, or reconstruct the general banking law..

Consequently, Congress not only revised the old GBA, RA 337, but replaced it with the New General Banking Law (GBL 2000), RA 8791. Under this new law, some of the powers of the old Monetary Board were clipped, most of them transferred to the Department of Finance, and some of them to the Securities and Exchange Commission (SEC). And yet some of them were eliminated. Some other banks are now governed by other banking laws, placing the Monetary Board as “still supervising” but along with other authorities.

There are now many banking laws in the Philippines. Thrift banks, rural banks and cooperative banks are now governed by the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code. Cooperative banks are not only monitored but also supervised by the Cooperative Development Authority. Section 94 of 8791 also provides the "phase out of Bangko Sentral Powers over building and loan associations. All the relevant supervisory and regulatory powers of the Monetary Board under that Section were transferred to the Home Insurance and Guarantee Corporation.

As for the Islamic Bank, it is now governed by special laws as provided in Section 71, RA 8791 - rather than the general banking law. This governance covers the "organization" of the Islamic Bank, "its ownership and capital requirements, powers, supervision and general conduct of business".

As an update to IRR under BSP Circular 106 and in pursuance to the provisions of the new GBL 2000, the Monetary Board, in its Resolution No. 2154 dated December 15, 2000, approved Circular No. 271, Series of 2001, otherwise known as the regulations implementing Section 3 and other related sections of R.A. No. 8791. Under this new rules and regulations (NRR), the Islamic Bank is classified as one kind of its own, with its own sets of rules and regulations as distinguished from the other banks.

My Jewish good friends,

Peace and Greetings to everyone.

Yesterday was Friday when Muslims gather in their respective mosques for the congregation prayer. This blog schedules a “Friday Time”, to reflect on current events that are affecting everyone. Inevitably, the war in Lebanon brings to mind. And the Jews are on top of my mind. As blog is also a personal diary, they say, I was reminded to write about my Jewish good friends. One very friendly Jew that I met some twelve years ago was introduced to me by my Australian friend, Kym Arthur Roy. The name of this man is undeniably Jewish. How can I forget Daniel Cohen. I had an emergency way back then. It was a very serious matter because I suffered a heart attack. This led to an open heart surgery, whereby my heart was physically sliced open by my surgeon. It was from a check issued to me by Daniel that partly financed my open heart surgery. With the funds from him, my wife was able to secure a titanium prosthetic mitral valve that I now wear inside my heart. Yes, some of my friends call me a ‘bionic man’. Ah! That’s part of my profile. I can share my layman’s knowledge on heart conditions based on my experience.

By the way, Cohen related to me a story about his sister’s re-engineered heart. That’s why he sympathized with my condition.

Then another American Jew entered into to my circle of friends. His name is also undeniably Jewish. David Satinover joined our Islamic Bank in 1999 as among foreign stockholders. He acquired shares of the bank only to be elected as member of the board of directors in that year. Our acquintance developed when David tried to learn from me about the Qur’an. Although he served the bank only for a year, his contribution is very well acknowledged.

Yet another man, very proud to be a Jew, joined our Islamic Bank last 2002. He is particularly proud to bear his name and place: Daniel Caher O’doherty, Texas, U.S.A. Like David, O’doherty was also a member of our board of directors just for a year.

My good Jewish friends are all part of the history of our Islamic Bank. Aside from this, I know very little about the Jews, about Israel, and about the Lebanese. I am ignorant about the raging war in Lebanon.

In Islam, a person is forbidden to speak about anything of which he or she has little knowledge about. This is the teaching of the Qur’an in the story of “The three men by the cave” (Surah Qahf, Al Qur’an) . They were believed to be Jews who believed in the oneness of God, the Almighty. It is for this reason that they faced persecution. So they sought refuge in God alone. They run from persecution until they reached a cave and slept there until nobody knows how long except God. Perhaps this is the original version of the story about Rip Van Winkle who had fallen asleep for twenty years. But in the case of the story in the Qur’an, some say they slept in the cave for three hundred years. And some say more. Some say they were three young men. Others say, they were five. Yet others say they were seven, including their dog.

The moral of the story, which is the teaching of the Qur’an, is : Never enter into a controversy except on matters of which you have sufficient information. So what can I say about the raging war? May I only say peace to eveyone, peace on earth.

One purpose of a blog is to find old friends. I wish this writing finds its way to the monitors of my Jewish good friends.

Truly yours, Abdel