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

Islamic Finance Confronts Pandemic: Global Finance

The $2.4 trillion Islamic finance industry, invested heavily in microfinance, faces special liquidity challenges with the pandemic
Chloe Domat
Sunday, May 24, 2020

Read the article from Global Finance about pandemic challenges for the Islamic finance industry.

Islamic Banking Shari’ah does not permit receipt and payment of interest, excessive uncertainty, gambling, short sales or financing activities that it considers harmful to society.  Instead, the parties must share the risks and rewards of a business transaction, and the transaction should have a real economic purpose without undue speculation, not involving exploitation of either party.  –    International Monetary Fund
Global issuance of Sukuk, the Islamic equivalent of bonds, and other financial instruments expand, and the IMF played a role in establishing the Islamic Financial Services Board – managing liquidity risk is a challenge with limited Shari’ah-compliant financial markets (Source: IMF)

Value of Islamic Banking Assets by Region, US$ Billions, 2018: GCC $705,  Middle East/N Africa  $540,  Asia $266,  Others $47,  Africa $13
Islamic banking assets: The Middle East/North Africa region excludes Gulf Cooperative Council members and the Africa region excludes nations in the Middle East/North Africa region (Source: Statista)

Copyright © 2020 Global Finance Magazine. All rights Reserved.