Islamic Finance Confronts Pandemic: Global Finance

The Islamic finance industry, operating in about 80 nations, has a large market share in microfinance, small enterprises and retail lending. The Covid-19 pandemic will hit the industry hard with governments closing stores and ordering social-distancing, along with many borrowers seeking forbearance, restructuring or new loans. Governments hurried to assist corporations, with less support for low-income individuals and firms. Some banks have portfolios dominated by energy or real estate interests, and challenges vary by region. “Unlike their Asian or African counterparts, Islamic banks in the Arab world depend largely on government spending which means the unprecedented drop in energy prices has serious implications for them,” reports Chloe Domat for Global Finance. “To limit the liquidity risks, most lenders now refuse to serve new customers, which in turn has a direct impact on profitability.” Regulators in Bahrain, to save jobs and businesses, imposed a six-month freeze on financial payments, and that means banks in that could have zero cash inflows during that period. The industry escaped harm during the 2008 crisis due to limits on risks, though this crisis may introduce more consolidation. Other possible trends include an increase in socially responsible investing and participation in pandemic response and development planning. – YaleGlobal