Al-Amanah Bank to finance LGU projects next year

MANILA, Philippines — Al-Amanah Islamic Investment Bank of the Philippines will begin financing local government units (LGUs) next year to address underfunding and support infrastructure deficits and basic public services.

Al-Amanah chairperson and CEO Amenah Pangandaman said the state-owned bank would initially focus on local governments in Mindanao before expanding the program nationwide.

The bank primarily extends Shariah-compliant financing to individuals, agricultural workers, cooperatives and micro, small and medium enterprises.

Shariah-compliant means that a financial product, service or business activity is in accordance with the rules and principles of Islamic law.

“We all know that Mindanao’s LGUs have long faced underfunding and infrastructure deficits compared to the rest of the nation,” Pangandaman said in a forum.

“By providing the support and investment these communities deserve, we can close the gap in basic public services and pave the way for a sustainable climate-resilient future,” she added.

Al-Amanah plans to finance revenue-generating projects such as hospitals and health facilities, water systems, public markets and slaughterhouses, cold storage facilities, transport terminals and solar and other power-generation facilities.

It will also finance service-enhancing projects, including heavy equipment, farm-to-market roads and bridges, municipal halls and capitol buildings, schools, convention centers, solid waste management facilities and real property tax collection systems.

Under the planned program, all provinces, cities, municipalities and barangays may apply, provided they have balanced or surplus actual income for the last three years and efficient collection of real property and other local taxes, with collections showing steady growth over the same period.

LGUs that designate Al-Amanah as their national tax allotment depository will also be given priority, the bank said.

Pangandaman said LGUs typically implement development plans using annual budget allocations, meaning projects are funded one year at a time. Al-Amanah’s financing would allow them to accelerate implementation, with repayments matched to the revenue generated by the projects.

The bank also plans to structure repayment around the LGU’s own revenue cycle, not a fixed calendar.

“At Al-Amanah, we do not lend money and charge for its use. Instead, we build, buy or lease the actual asset the LGU needs, then is paid for that asset at a price fixed in advance,” Pangandaman said.

Pangandaman said the transactions would not involve “riba” or unjustified excess and will be free of interest in any form. 

“There is no floating rate as the profit or rental rate is fixed for the entire term and does not change. Lastly, the total cost will be agreed upon and disclosed to the LGU before signing,” she added.

Al-Amanah operates under its own legislative charter, supervised by the Bangko Sentral ng Pilipinas.