Pandemics have afflicted civilisations throughout human history. From the Plague of Justinian to Black Deaths, Smallpox to Cholera and Spanish Flu to Ebola, these pandemics have had significant impacts on human society, altered the course of human activities and shaken economies with huge global costs.
Since the current pandemic, COVID-19 outbreak was first spotted, it has spread to over 215 territories in nearly all continents, with 2 major moves from China to Europe in March and Europe to the United States in April. It has infected around 19.3 million people with 0.73 million causalities and the number is still skyrocketing. Estimates show that COVID-19 will spread and penetrate largely throughout the globe and may ultimately infect 40% to 70% of the global population.
The pandemic is having a conspicuous impact on the global economic growth and it is estimated that if the current situation continues it may sharply trim the global economic growth that could be 2% monthly, while the possible fall of global trade is expected to be between 15% – 35%. Data of Q1 2020 indicates that on an annual basis there is a 4.8% decrease in GDP, only in the United States; that is also the most affected victim of COVID-19. Moreover, within less than 60 days 36.5 million U.S. adults have filed for unemployment benefits. Earlier in April, the Asian Development Bank stated that the pandemic’s global cost could range from USD2 trillion to USD4.1 trillion, but in May, the same institute revised the estimate to be now between USD5.8 trillion and USD8.8 trillion, which equates to 6.4% – 9.7% of the world’s economic output.
The worldwide pandemic could either further ensconce neoliberal structures or form an opening for sweeping change to the financial landscape. Either way, life as we know it is over. The banking system is the backbone of any economy and play a significant transitional role by transferring money from savers to the users of capital and provide the essential capital to the factors of production. An ideal and absolute banking system discharges this intermediation efficiently and at the same time offers value-added services and can help provide impetus to economic growth.
Around 1450 Islamic financial institutes in 45 territories have a great chance to record huge progress in numerous domains. More specifically Islamic banks across the globe may convert this inescapable catastrophic scenario into an opportunity for radically changing especially in digitalisation. As per the latest developments, within the Islamic finance spectrum, Islamic banking section is most dominant with around 73% of the total IF sector with majority of the clientele.
The old-style payments ecology exposes numerous people to the risk of a COVID-19 contagion. The question arises, shouldn’t the customers be enabled enough where they can make transactions by no-touch payment terminals? Of course, they should be. Digitalisation could stimulate growth by making transactions faster, more sheltered, and cooler to implement. Thus, the social role of Islamic finance could unlock new growth opportunities as fundamental markets implement sustainable development goals in quick time.
Given the fact that the consumers of Islamic finance market, notably the digital-savvy millennial, have become more prosperous and affluent are coddling into other segments of the Islamic digital economy that includes health and beauty, tourism, and fashion the case for an inclusive Islamic digital economy and the role for Islamic banking and finance within has become clear. Younger customers are anticipated to play a decisive role in the evolution of Islamic finance and magnify its client base in the future, with the younger fragment supposing to contribute as much as 75% of total banks income by 2030. Within the Islamic banking, disruption remains a great prospect for the sector to reorganise services and entice new divisions and segments, with the key being the digital-savvy millennial and the Generation Z. It is also imperative that inclusive standardisation, fintech, and a greater focus on the social role of Islamic finance may bring back the times of double-digit growth in the IB industry.
In every crisis there is an opportunity; it is high time for Islamic financial institutions to lead from the front and bring the revolution that is the need of the hour. Financial leaders are in triage mode right now. A stream of priority operational decisions need to be made to react to the constantly changing conditions. Innovation of Islamic financial products must go deeper into the financial re-engineering processes with Shari’a support and due research, rather than just tweaking conventional contracts and should be able to provide true differentiation and real value additions.
As a matter of fact, with the ever-rising operations and transactional volumes and the introduction of new digital payments options, the Islamic banking sector may also face the challenge of controlling dishonest and duplicitous activities without compromising on the expediency of the customers. Nevertheless, Islamic banks may still increasingly issue smart cards to work with the traditional magnetic-based i-cards, due to their better protections and tamper-free nature. Islamic banks also need to provide innovative solutions and take necessary initiatives to stimulate and promote the use of smart cards to track activities of valued customers with greater ease. Such measures will definitely help in enhanced client supervision and management, and will enable the execution of customer fidelity, faithfulness and loyalty programmes. In connection to this, essentially the Islamic banking software industry that has been projected to grow by USD460 million during 2020-2024, will also take a leap due to the post-COVID-19 financial landscape.
In essence and to cut a long story short, this unprecedented situation has provided many opportunities and avenues to Islamic banks for growth and advancements and banks should take advantage of this. There is a requirement for a radical overhaul of the operating models to adapt to the new market reality when the crisis ends and where customers no longer have to pay a potentially stress-inducing visit to a physical branch to complete simple transactions, account opening and financing applications.
Even after the end of the pandemic, digital solutions for banks will have enduring relevance. The growing popularity of digitalisation is a testament to that. Traditional banks that choose to learn and take lessons from digital financial institutions will find themselves more prepared to compete.
The upsurge of global digital titans has primed clients to expect adequate and complete online interfaces in all areas of their life, specifically banking. The COVID-19 has just aided to deepen people’s craving for digital services, turning it into a matter of urgency and perseverance.
The author has a Masters from INCEIF Malaysia and is currently enrolled in CORe, Harvard Business School. He is a speaker in various Int. Conferences and Global Forums. He is an Audit and Compliance professional with HBL Islamic, the largest banking conglomerate in Pakistan.