July 27, 2020
The study, through descriptive, deductive and analytical methodologies, aims at exploring the impact of the spread of the novel coronavirus (COVID-19) pandemic on Islamic finance (IF) industry. Given the fact that the pandemic represents an external cause (i.e. an exogenous factor) of the economic shock experienced by the global economy, and not an internal (i.e. an indigenous cause), as was the case in the 2007-08 financial crisis, in which the financial sector was the main source of the turmoil, the study sought to identify possible channels that could transmit the impact of the virus outbreak on IF by providing a brief review of the pre-pandemic industry’s situation. The review displayed revealed the existence of sectoral and geographic concentration. The sectoral concentration reveals the dominance of banking activities in the total assets of the industry, while the geographic indicated a strong concentration of IF assets in the two regions; MENA, Gulf in particular, and Southeast Asia. Knowledge of this situation represented the entry point through which the study explored the potential effects of the outbreak of COVID-19 on IF industry. As a result, the industry was affected by the exposure of the two major sectors affecting the economies of the two regions: oil for the MENA region, and tourism for Asia. The data available so far have shown that the industry has experienced a type of stability and insignificant vulnerability in the first phase of the virus outbreak, but it may see greater impact in the coming stages if the pandemic is prolonged through the extension of the associated policies and measures of closure, social distancing and other procedures that have affected economic and social activities immensely. The results also displayed the importance of technical and digitization developments to cover the deficiency caused by intimate personal and social contacts; the main channel for communicating with clients, in the pre-COVID-19 outbreak. This result requires the institutions of the industry to give due consideration to these developments in their strategic plans as the post-Coruna world is not like the one before it.
Keywords: Islamic finance, COVID-19, Islamic banking, MENA region, South East Asia, social distancing.