Poverty has occupied foremost place on human development agendas of almost all countries of the world as its prevalence dates back to the existence of human being. The Islamic banks and the Islamic windows of conventional banks pursue robust promotion of Islamic micro finance for faster poverty eradication with deeper, wider financial inclusion. Islamic microfinance involves Shariah compliant way of financing and providing credit without collateral or any property for guarantee to the marginally poor for their business, thus is a popular tool employed as part of a poverty reduction strategy, empowering and increasing the productivity of poor, giving social benefits to them in a sustainable way, and aiding economic development. Recently the pandemic (COVID-19) has taken over the world. Worldwide 7,624,618 million cases have been reported till date (12th June) with recovery of 3,862,565 cases and deaths of 424,383. This indicates the signs of upcoming depression that might hit the world once it is over.
History has been evident of high death rates caused by nothing but the infectious diseases. Covid-19 shows how endangered we humans are and how the pandemics have caused deaths in the past and what damage can it cause in the future as well. Corona virus disease (COVID-19) is an infectious disease caused by a newly discovered virus. Mostly people who fall sick with this disease will experience mild to moderate symptoms and recover without special treatment. The virus that causes COVID-19 is mainly transmitted through droplets generated when an infected person coughs, sneezes, or exhales. These droplets are too heavy to hang in the air, and quickly fall on floor or surface, infecting those who touch a contaminated surface and then their eyes, nose or mouth.
Every sector and thus the organization/company is expected to play its role and contribute in the hard times to either eradicate or dilute the effects of economic crises that in the current situation might occur because of the COVID-19. Similarly, we all know that Islamic Microfinance was established to cater to the needs of the needy and underprivileged community, operating based on the Shariah principles. Islamic Microfinance is as an essential tool in supporting and strengthening the economy at the bottom of the socio-economic pyramid by facilitating access to financial services for the poorest and the destitute. The strict prohibition of paying or receiving any fixed interest (Riba) is the most widely known characteristic of this financial system to provide fair assistance to the poor/needy.
Islamic Microfinance is a way to fix the credit markets and unleash the productive capacities of poor people who are dependent on self-employment. The microfinance plays a key role in development efforts targeting the poorest segments of the population and paving the way for different forms of social enterprise and social investment via subsidized and easy loan facility, Zakat, Charity etc.
COVID 19 global economic impact
While there is no way to tell exactly what the economic damage from the global COVID-19 pandemic will be, there is general agreement among economists that it will have knockout impact on the global economy. Early estimates predicated that, should the virus become a global pandemic, most major economies will lose at least 2.4 percent of the value their gross domestic product (GDP) over 2020. However, these predictions were made prior to COVID-19 becoming a global pandemic, and before the implementation of widespread restrictions on social contact to stop the spread of the virus. Since then, global stock markets have suffered dramatic falls due to the outbreak.
The economic damage caused by the COVID-19 pandemic is for the most part driven by a fall in demand i.e. no consumers to purchase the goods and services available in the global economy. This can be clearly seen in heavily affected industries such as travel and tourism. To slow the spread of the virus, countries placed restrictions on travel, the reduced demand causes airlines to lose predetermined revenue, eventually airlines will also need to lay off staff to further cut costs. The same dynamic applies to other industries, for example with falling demand for oil and new cars as daily commutes, social events and holidays are no longer possible. It is this dynamic that has economists consider whether the COVID-19 pandemic could lead to a global recession on the scale of the Great Depression.
Governments have learned from previous crises that the effects of a demand-driven recession can be countered with government spending. Consequently, many governments are increasing their provision of monetary welfare to citizens, and ensuring businesses have access to the funds needed to keep their staff employed throughout the pandemic. In addition, the specific nature of this crisis means that some sectors may benefit, such as e-commerce, food retail, and the health-care industry — providing at least some economic growth to offset the damage. Finally, there is the fact that the crisis may have a clear end date when all restrictions on movement can be lifted (for example, when a vaccine is developed). Taken together, this means it is at least possible the global economy could experience a sharp rebound once the pandemic is over.
According to Statista, the predicted monetary global loss in GDP due to COVID-19, by 2020 in the best case scenario (defined as a two-month duration of travel bans and a sharp decline in domestic demand) the monetary loss of global GDP is anticipated to be about $76.7 billion. In a worst-case scenario, (defined as a six-month duration of travel bans) the global GDP is predicted to lose about $346.98 billion.
Islamic microfinance as tools for reducing poverty
Reported by numerous researchers and policymakers, Islamic microfinance boosts entrepreneurship, increases income-generating activity thus reducing poverty, empowering the poor, increasing their accession to health and education and building social capital among poor and undefended communities.
In response to the COVID-19 pandemic, Islamic Microfinance companies have started taking relevant initiatives across various countries of Europe and Central Asia to extenuate the impact on the microfinance sector. Every part of the Islamic micro-finance sector needs to mobilize, ease and change the terms of debt. This would create ease for the borrowers who cannot service when there is economic downfall or economies seize up, especially the poor. Subsidized 2-3 year loans to provide short-term support to affected businesses is an option that can be implemented by microfinance companies. Microfinance institutions must brace themselves to ride out the economic storm. Investors and donors are looking for ways to provide support, even as their own economies suffer. Providing emergency loans to the poor for acquiring the basic necessities in the period of the pandemic Charity and Zakat are indeed another alternative to help the needy and the actual deserving people. The pandemic Charity cell can be made operational where people and organizations give charity that is then distributed and delivered to the right hands.
Interest-free loans in refinance in COVID 19 situation interested can be provided, as in Qatar companies provided under the National Guarantee Program funds of QAR 3 billion ($815,000). The Qatar Financial Center has cut the rate on late tax payments to zero from 5 percent until September 1, 2020. Islamic Development Bank was also reported to provide $35 million to Sudan, according to IMF.
IMF and World Bank
The IMF providing facilities and instruments in its toolkit to help countries respond to the economic impact of the coronavirus, such as (i) emergency financing in which the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) provide emergency financial assistance to member countries to assist member countries implement policies to address emergencies such as the coronavirus, ii) augmenting existing lending programs where IMF can modify as needed existing programs in support of countries to accommodate urgent new needs arising from the coronavirus, iii) grants for debt relief in which the Catastrophe Containment and Relief Trust (CCRT) allows the IMF to provide grants for debt relief to the poorest and most vulnerable countries with outstanding obligations to the IMF, iv) new financing arrangement where the IMF can provide support through a new financing arrangement under its existing facilities such as Stand-By arrangements. Moreover, the IMF will continue to support endangered countries through capacity development.
The World Bank approved million dollars in immediate funding to support countries in their response to the global COVID-19 pandemic. The World Bank Group is deploying up to $160 billion in long-term financial support over the next 15 months, placing emphasis on policy-based financing and protecting the poorest households. This includes a $14 billion fast track package to respond to immediate COVID-19 health and economic needs.
Centre of excellence in Islamic microfinance
(CEIMF) is committed to encourage and fortify the Microfinance industry through Islamic Microfinance product advancement, development, Shariah skills and supervision, standardization and arrangement of technical knowledge. Primary reason for building up (CEIMF) is to fortify the capacities of the organizations working to combat the destitution according to Shariah to create such a financial sector that supports the unheeded segments. Therefore, Alhuda Center of Islamic Banking and Economics (CIBE) has worked with various organizations to subdue global poverty, specifically with UNDP, Islamic Development Bank, State Bank of Somalia, IFC-USA, Islamic Microfinance Network, Mercy Corps – USA, Yemen Microfinance Network, Microfinance Investment Support Facility for Afghanistan and Asian Development Bank.
Alhuda conducts International conferences every year, inviting global microfinance experts to create awareness of Islamic Microfinance, encouraging practitioners, Microfinance institutions, donor agencies and government institutions by building up acknowledgement of Islamic Microfinance Systems. This provides a platform for dialogue between multilateral donor organizations and Microfinance networks to provide up to date knowledge of various aspects of Islamic Microfinance. This will promote entrepreneurship and SME Islamic financing.