The Post-COVID Era and Islamic Banking and Finance
The COVID-19 pandemic has affected humanity in the most comprehensive way possible, so none of us has been unscathed by it, at least indirectly. According to a recent global survey conducted by McKinsey & Company, the most recent concern is about rising price levels that are partially explained by supply chain disruptions. Given that the COVID-19 isn’t being seen as the greatest risk to businesses, one may assume we are nearing the end of this crisis.
Consequently, some observers have already started talking about the Post COVID-19 Era and the adjustments governments, businesses and individuals will have to make in their respective fields to live in the so-called New Normal in the aftermath of the COVID-19. Given the emergence of successive variants of the virus, one may incline away from talking about the Post COVID-19 Era. But sooner or later, this pandemic will be over and all of us will find ourselves in a world remarkably different from what we used to be in, pre-2019. The social life may revert to the pre-COVID times but businesses will definitely face new challenges that will shape the way we run operations within organisations.
The Post-COVID-19 Era signals the epoch that arises after the global health and socioeconomic crisis of the COVID-19 pandemic that has accelerated developments towards the fourth industrial revolution. For ease of reference, I would like to call it PC19E. If we consider the end of 2019 as the start of the COVID-19 pandemic, it may not be entirely too optimistic to assume the start of 2022 as the predawn of the PC19E. Nearly two years of the pandemic have certainly changed the way we live on the planet. The PC19E would carry the legacy of the pandemic for many years to come. The global Islamic financial services industry must adapt itself to the requirements of the PC19E. What are such requirements?
• Devising carefully thought strategies to develop a system that efficiently absorbs any external shocks This is essentially related with the issue of stability and sustainability of the industry. This in turn relates to developing a robust regulatory framework for Islamic banking and finance.
• Re-alignment with the global socio-economic agenda
Environment, Society and Governance (ESG) would be central to the global policy agenda in the years to come. In this respect, the role of Islamic financial institutions in developing social infrastructure is paramount.
• Adoption of cutting-edge technology for effective outreach to capture green pastures of the market The use of technology should allow Islamic banks and financial institutions to achieve objectives of financial inclusion in developing countries and to provide cost-effective financial solutions to the Muslim segments of the populations in the countries (both in the West as well as in other parts of the world) where the physical presence of Islamic financial institutions is not cost-effective or feasible due to spatial spread of Muslims.
• Need for a global post-COVID-19 sukuk issuance programme to finance recovery endeavours in the OIC countries
Islamic Development Bank (IsDB) has already initiated a global sukuk programme to help its member countries to achieve their Sustainable Development Goals (SDGs). A similar programme with an exclusive focus on the compelling needs of the PC19E must bring the role of Islamic banking and finance in poverty alleviation and achieving similar social-economic objectives.
• Re-orientation of the industry away from traditional banking and towards a more inclusive model of finance
There is no doubt that smaller financial institutions will benefit from the ubiquitous use of technology. It will allow them to have wider outreach in more cost-effective ways than the banks that have been spending huge amounts on maintenance of expensive branch networks. Smaller Islamic financial institutions must be encouraged to meet the specific needs of market segments. This should bring up a new breed of Islamic financial entrepreneurs who are expected to bring new rigour to the industry.
Islamic banking and finance must adopt virtual reality, as physicality is going to disappear fast in the next decade or so. Physical human beings, personal interactions and workplaces with professional environments will reshape themselves to completely adopt the new norms and rules. Islamic banking and finance in a virtual set-up is the future. Brick-and-mortar model of business organisations will no more be relevant. As Islamic banking and finance failed to develop a truly global Islamic bank in its first 50 years of existence, it is time to start thinking about setting up a global Islamic financial institution that is not restricted by national boundaries – a completely virtual organisation.
Blockchain technology can play a role here. A democratic institution with no concentrated control on the top but based on decision-making done through a completely decentralised system. What it necessarily means is replicating Bitcoin (a product) into an institution. This Islamic financial institution will have no CEO, no visible management and no hierarchical structure.
Whether the industry is ready for this or not, this proposition must be taken seriously by all the stakeholders in Islamic banking and finance.
Do we have time to think about it? We better should have; otherwise COVID-19 will be remembered as a catastrophe the Muslim world faced, without identifying an opportunity in it and grabbing it.