By: Amenah Pangandaman
That connection matters to me because I saw it in public budgeting. And I see it now at Al Amanah Islamic Investment Bank of the Philippines.
Local governments know what their communities need. The problem is that resources do not always keep pace.
A water system cannot wait forever for a bigger budget. A growing town needs a market that can serve more traders. A health facility has to be built when people need it, not years later.
Financing development
This is where banks can play a bigger role.
But the question is not simply: Can we finance it? The better question is: Can we finance it in a way the LGU can sustain and the community can actually benefit from?
Islamic banking has something useful to offer here. Islamic finance is tied to real economic activity.
In the structures we are preparing for LGUs, financing will be linked to an identifiable asset or project.
Depending on the arrangement, the bank can finance its construction, purchase or lease. Both sides know exactly what is being financed and what each party is responsible for.
That clarity is important for local governments managing public money.
Predictable financing costs
At Al Amanah, we are preparing to introduce Shariah-compliant financing for LGU development projects next year, initially focusing on Mindanao.
We are looking at projects such as water systems, health facilities, public markets and transport terminals. The total financing cost will be agreed upon before signing. The applicable profit or rental rate will remain fixed throughout the term.
For an LGU, predictability helps. Officials can plan payments alongside the continuing cost of public services. For businesses, better local infrastructure can also mean a more stable place to operate, invest and grow.
But predictable payments do not automatically make a project good.
Beyond construction
A market needs traders who can afford the stalls. A cold storage facility needs reliable electricity and sufficient demand. A transport terminal still has to be maintained long after the ribbon-cutting.
That is where banking discipline comes in. We have to look beyond whether something can be built. Can it keep working? Can the LGU maintain it? Can it meet its obligations without putting essential services at risk?
Islamic finance does not remove those questions. LGUs will still have to comply with borrowing requirements, including rules on borrowing and debt service capacity. Our job is to structure financing within those safeguards and make sure the project serves a real economic purpose.
Local realities
Our initial focus on Mindanao also comes with an important reality: LGUs are not all alike. What works for one city may not work for a smaller municipality.
Financial capacity, revenues, and local needs all differ. And financing has to reflect those differences.
The same goes for inclusion. It is easy to use the word. The harder part is asking who actually benefits.
If we finance a public market, are women entrepreneurs able to use it? Are the stalls accessible? Are basic services available? If we finance transport infrastructure, can workers get to their jobs safely and affordably?
These are not side questions but important decision points that help determine whether a project succeeds.
Building resilience
Resilience matters, too.
Infrastructure should not be judged only on opening day. It has to keep serving people through disruptions, changing conditions and the years ahead.
For my colleagues in banking, this is where I believe Islamic finance has wider relevance.
Its emphasis on real assets and productive activity gives us another way to finance development. But its credibility will ultimately come from something much simpler: good projects that work.
Beyond the numbers
I bring a public budgeting perspective to this job. Behind every financing agreement are people waiting for something to improve.
That is easy to forget when we talk about rates, structures and repayment schedules.
So I go back to that public market.
In our books, it may be a financing transaction. For a vendor, it can mean a dependable place to earn. School fees get paid.
A family gets a little more room to plan for next year instead of worrying only about tomorrow.
That, to me, is what good financing should build. —Ed: Corrie S. Narisma
Amenah “Mina” F. Pangandaman is the chair and CEO of Al Amanah Islamic Investment Bank of the Philippines. An economist and public servant, she has spent more than two decades in the Executive and Legislative branches and the Bangko Sentral ng Pilipinas. She made history as the first Muslim woman to serve as Secretary of the Department of Budget and Management. A proud Maranao and Mindanaoan, she has championed open government, public finance reform, and peacebuilding, earning the Gawad Kapayapaan Award. She also leads civic initiatives, including the Dugtong Buhay Movement, and serves as an Auxiliary Vice Admiral in the Philippine Coast Guard Auxiliary.
