Islamic finance social instruments could help countries navigate the economic turbulence wrought by the COVID-19 pandemic in core Islamic finance countries.
ISLAMIC FINANCE INSTRUMENTS THAT COULD HELP
Four Islamic finance social instruments in particular can help core Islamic countries, banks, and corporations navigate the current situation.
Qard Hassan
This instrument consists of a loan granted for welfare purposes or to bridge short-term funding requirements where the borrower is required to repay only the principal. As corporations and individuals grapple with the impact of COVID-19 on their revenue, Qard Hassan from banks could provide breathing space until the environment stabilizes. For example, the central banks of some GCC countries opened liquidity lines for financial institutions at no cost to provide subsidized lending to their corporate and SME clients.
Social sukuk
These are sukuk, where the rate of return declines if the issuer fulfills certain social objectives. Sukuk Ihsan, issued by Khazanah National Berhad in 2015-2017, are an example of such instruments. These instruments could help support the education and health care systems amid the current crisis and attract particularly ESG investors (those looking to invest for social reasons) and/or Islamic investors (looking for Sharia-compliant investments).
Waqf
This consists of a donation of an asset or cash for religious or charitable purposes with no intention of repayment or remuneration. Waqf in the current circumstances could help provide affordable housing solutions or access to health care and education for people that might have lost a portion of their income. Recently, a UN agency signed an agreement with the Islamic Corporation for the Development of the Private Sector to look at the potential use of Waqfs as a source of sustainable financing focusing on vulnerable Saudi communities.
The Accounting and Auditing Organization for Islamic Financial Institutions prepared an exposure draft on Waqf governance, but it has not yet been approved.
Zakat
This is similar to a tax levied on wealth over a certain threshold. Zakat can be used for social welfare purposes, for example supporting people in need or that have lost a portion of their income, without any expectations of repayment or remuneration. Based on our conversations with market participants, we believe that Zakat could help compensate the loss of income for households because of COVID-19.
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ISLAMIC FINANCE INSTRUMENTS THAT COULD HELP
Four Islamic finance social instruments in particular can help core Islamic countries, banks, and corporations navigate the current situation.
Qard Hassan
This instrument consists of a loan granted for welfare purposes or to bridge short-term funding requirements where the borrower is required to repay only the principal. As corporations and individuals grapple with the impact of COVID-19 on their revenue, Qard Hassan from banks could provide breathing space until the environment stabilizes. For example, the central banks of some GCC countries opened liquidity lines for financial institutions at no cost to provide subsidized lending to their corporate and SME clients.
Social sukuk
These are sukuk, where the rate of return declines if the issuer fulfills certain social objectives. Sukuk Ihsan, issued by Khazanah National Berhad in 2015-2017, are an example of such instruments. These instruments could help support the education and health care systems amid the current crisis and attract particularly ESG investors (those looking to invest for social reasons) and/or Islamic investors (looking for Sharia-compliant investments).
Waqf
This consists of a donation of an asset or cash for religious or charitable purposes with no intention of repayment or remuneration. Waqf in the current circumstances could help provide affordable housing solutions or access to health care and education for people that might have lost a portion of their income. Recently, a UN agency signed an agreement with the Islamic Corporation for the Development of the Private Sector to look at the potential use of Waqfs as a source of sustainable financing focusing on vulnerable Saudi communities.
The Accounting and Auditing Organization for Islamic Financial Institutions prepared an exposure draft on Waqf governance, but it has not yet been approved.
Zakat
This is similar to a tax levied on wealth over a certain threshold. Zakat can be used for social welfare purposes, for example supporting people in need or that have lost a portion of their income, without any expectations of repayment or remuneration. Based on our conversations with market participants, we believe that Zakat could help compensate the loss of income for households because of COVID-19.
+ Madin Academy mega prayer meet goes online
+ Islamophobia in India upsets Arabs, affects ties: Saudi editor
+ SYS to promote veg cultivation in homes
+ Kozhikode: Rs 100 crore trade centre at Markaz Knowledge City
+ Kanthapuram meets Malaysian PM
+ Paying tribute to the Victims of New Zealand terror attack at Markaz Mosque Kozhikode
+ Alif Educare to launch global schoolat Markaz Knowledge City
+ Kanthapuram Grand Mufti of Sunnis in India
+ Kanthapuram elected as new Grand Mufti
+ Kerala Haji App
+ Kanthapuram: Government must focus on development
+ The Govt Can't go ahead without facing the basic needs of the people: Kanthapuram
+ 'Pledge for building a tolerant India'
+ Sayyid Ibrahimul Khalilul Bukhari - Profile
+ Mangaluru: SSF holds rally against drugs and alcohol in New Year parties
+ 'Reciting 1 million Surah Al Fatiha' initiative launched
+ Sunni centre to adopt 100 villages
+ Mangaluru: Do not respond to vote bank politics - Kanthapuram Aboobacker Musliyar urges DK people
+ Students exhorted to fight fascism, immorality
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