COVID-19 has left the global economy reeling. Being part of the global financial system, Islamic finance has a crucial role to play as it is the only institution that has shown resilience during these unprecedented times and can contribute to the new normal.
First, to authenticate its existence in the global financial system. Despite its long history, Islamic finance was unable to fully exploit the various segments of the market and become a hallmark of the global financial system.
Therefore, Islamic finance needs to capture the window of opportunity created by Covid-19 and tap important segments of the market.
Second, active participation in restarting the economy at its full capacity will authenticate the purpose of its existence and live up to its reputation of an ethical system, which will boost its brand value.
The question is, how can Islamic finance contribute to restart the global economy and adjust to the new normal? The answer is Islamic finance needs to assess and address the implications of Covid-19 on societies and the people.
An overview of these implications reveals that Covid-19 has resulted in massive unemployment, worsening the condition of millions of people living below the poverty line, forcing many small- and medium-sized enterprises to file for bankruptcy, which has disrupted the supply chains.
Even though governments are providing financial support and inclusive policies, institutions, such as Islamic finance, need to stand up and help governments in ensuring the effectiveness of government policies.
We have seen financial institutions provide loan payment moratoriums to ease customers' burden. Financial institutions have been encouraged to delay imposing late-payment charges on customers in difficulties.
In reality, Islamic finance is only one part of muamalat, or Islamic transaction. The roles to expand and strengthen the way muamalat is conducted according to syariah do not lie with Islamic financial institutions only.
Islamic finance is not restricted to Islamic banks or takaful. Others, such as zakat, waqf and sadaqah (alms) institutions, should position themselves as main players in providing better options for the market to grow again.
History has proven that the renaissance of civilisation through Islamic economics was due to the growth of social finance, such as zakat, waqf and sadaqah.
Social finance should not be left to non-governmental organisations (NGOs) alone.
NGOs are the support system in social finance, but the main player is the regulator or the government by providing access and eliminating hardship. The approaches of takaful are based on the principles of risk sharing.
Providing protection for communities does not only lie with takaful operators. The authorities can also provide the same protection.
With the threat of Covid-19, the authorities are urged to continue being proactive to ensure protection for all citizens, such as providing free vaccines and treatment for Covid-19.
The role of hisbah (collective responsibility) could be extended to agencies with health as the focus. With mosques as a meeting point, the khairat fund should be extended to all mosques.
The smallest unit, the family, can spend wisely, pay off debt, give sadaqa to help those in need, pay zakat, provide waqf and save in non-riba institutions such as Tabung Haji to perform the haj and umrah.
These are options that will be beneficial collectively.
In general, muamalat in Islam involves everyone from top to bottom. Islamic muamalat can perhaps establish a formal institution, such as a zakat bank, to focus on minimising economic, resources and health inequalities as well as strengthening social safety nets.
This will allow Islamic financial institutions to contribute to the post-Covid-19 period and achieve Maqasid syariah goals while helping realise sustainable development goals of countries.
Islamic muamalat should continue contributing to the social welfare of society and people through its ideas and actions as it may harvest the low-hanging fruits of these actions in the future, and the ultimate reward is decided by Allah SWT.
Dr Hakimah Yaacob is senior assistant professor, University Islam Sultan Sharif Ali (Unissa), Brunei Darussalam, while Qaisar Ali is a Phd candidate, Islamic Banking and Finance, Unissa