Amidst the current coronavirus pandemic, compassion, solidarity and selflessness have stood out to become the values that unite humanity across the globe, irrespective of nations, ethnic backgrounds and religions. The principles of Islamic economics and finance have the natural ingredients to be at the vanguard to put those values in place; although on the level of implementation Islamic finance is perceived to have failed in delivering on its promises of fairness, equity and inclusion. This perception should not come as a surprise though, since the Islamic finance industry is built upon the traditional model of finance and financial system.
Nevertheless, prior to the Covid-19 pandemic, Islamic finance had demonstrated a changing trend towards the propagation of Environmental, Social and Governance (ESG), which refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. Malaysia’s movement of Value-Based Intermediation in Islamic Finance can be considered as evidence of such a change. Another one is the issuance of Khazanah sustainable and responsible investment (SRI) ṣukūk. Waqf-linked ṣukūk is also another breakthrough championed by the Indonesian Ministry of Finance in partnership with Badan Wakaf Indonesia (BWI) and Bank Indonesia.
It is becoming apparent that the drivers of the change now are no longer driven entirely by profit motive; rather, emphasis is upon creating social and environmental impact. However, given the current pandemic, which has inflicted casualties permeating into social and economic spectrums of life, is it still realistic to expect the same kind of Islamic finance post-Covid-19? It may be premature to have an affirmative answer right now. But there are five dimensions, which I think, can possibly impact the outlook of Islamic finance post-Covid-19:
1) Social norms and values may evolve.
This evolution can bring about entirely different preferences and perception about life in general, which social, economic and financial interactions are part of. A heavy reliance on the traditional model of finance and financial system which has resulted in what El-Erian calls inequality trifecta—inequality of income, wealth, and opportunity—needs a reality check. This could ignite the global community to question the relevance of the existing institutional set up of financial intermediaries.
2) Changing methods of conducting business coupled with pervasiveness of digitalization.
As the social interaction may shift to a new equilibrium, coupled with the pervasiveness of digitalization, the way of doing business, work methods and financial dealings may drastically change as well. Automation of processes will be unsurprisingly just a matter of a split second. For Islamic financial transactions, this will surely pose a new territory of challenge. Countless traditional fiqh rulings can be challenged as a result.
3) New assets classification may likely emerge.
The new digital reality may likely alter the notions of assets. This may affect how an asset qualifies as ‘mutaqawwam’ or lawful under Sharīʿah. A different characterization of asset types that can constitute a debt is a sheer possibility. If this materializes, the set of Sharīʿah parameters as guiding principles for Sharīʿah-compliant products will inevitably shift to a new equilibrium. Consequently, the building blocks of contracts and landscape of Islamic financial transactions are expected to be different from what we have now.
4) Birth of a new global currency is not to be ruled out.
The hype of cryptocurrency and the use of blockchain technology over the past few years coupled with an increasing prominence of digital economy should not go unnoticed. Going forward, the use of means of payment other than fiat money may find its utmost momentum.
5) Moving from globalization to regionalization. The pandemic has unraveled the world’s precarious dependence on China, a country that controls one-third share of global supply chains. This can trigger a massive restructuring as production and sourcing move closer to end users and companies localize or regionalize their supply chains. And in the context of Islamic finance and halal industry, this can pave the way for the effective realization of South-South cooperation among member countries of the Organization of Islamic Cooperation (OIC).
The Kingdom of Saudi Arabia, being the largest Islamic finance market globally in economies with dual financial systems (comprising both...Read