What COVID 19 Means for the Global Islamic Economy - Briefing Notes

Transcription

1. Industry Series Monday - 9 November 2020 What COVID-19 Means for the Global Islamic Economy : Threats & Opportunities Emerging market economies that were previously dependent on the Western economies for growth via exports are now facing backlash as lockdowns across the world means that this reliance is no longer possible. Survival of banks would depend on two factors: availability of reserves and credit quality. Cash flow and liquidity are the primary areas of concern, before moving onto profitability. It is imperative to actively work towards the creation of a circular economy, “from cradle to cradle” to shape a more resilient, environmentally safe, and socially just world. T hreats Facing the Global Islamic Economy: Daud Vicary opened the discussion by inviting Datuk Noripah Kamso to share her views on the major threats facing the global Islamic economy. Kamso stated that from the perspective of the global economy, there are three main risks: first, resistance to change; second, leadership and communication; third, the resurgence of another pandemic. Expanding on the first threat, Kamso added that her biggest fear was that if there is no immediate response to the crisis at hand and businesses choose to adopt their old ways of operation in terms of polluting the environment, it would threaten the achievement of the United Nations’ 2030 Sustainable Development Goals. Talking more on the second threat, Kamso stated that there is a severe global threat as the world is currently in limbo without any real leaders in charge, rather the world leaders are now seemed to be playing a blame game. She suggested that in order to mitigate the third threat, it is imperative to build an economic system that could withstand another pandemic, adding that countries that have dealt with the aftermath of war, such as Japan, South Korea and Germany, were better equipped to handle such pandemics. Connecting these threats to the global Islamic economy, Kamso explained that these factors needed to be considered in the light of key Islamic economy objectives, namely justice, equality, collective welfare, and ethics. Vicary then invited Khalid Howladar to comment on the same issues. Howladar said that the pre-pandemic global economy was more multilateral, with corporates and countries integrating their supply chains towards an integrated global growth path. The pandemic, however, has caused division between countries as THREATS De-globalisation Resistance to change Increased budget deficits Weak Leadership Livelihood deterioration Resurgence of another pandemic DAUD VICARY Chairman of Advisory Board IslamicMarkets.com well as a fragmentation of the global economy and global supply chains. Emerging market economies that were previously dependent on the Western economies for growth via exports are now facing backlash as lockdowns across the world means that this reliance is no longer possible. Talking about the impact on local markets, namely the Gulf region and Asia, he noted that low oil prices and a drop in consumption have caused governments to resort to running massive deficits as they build stocks of sovereign reserves to navigate through the pandemic. However, his concern was for the future of the Gulf region, stating that there is a need to push towards economic diversification such as renewables and clean energy. Moving on to Asian economies, Howladar explained that whilst these regions were more consumers of energy which provided some benefit, their welfare and healthcare systems are not equipped to handle such large-scale pandemics. In addition, these economies that are largely dependent on tourism and hospitality, would remain under pressure for at least the next six to eighteen months. Sectors at Risk: Vicary retuned to Kamso and asked her opinion on the specific verticals of the Islamic economy that would be most impacted by COVID-19 and the stimulus packages needed to help mitigate the shock on these verticals. From a global perspective, Kamso explained that sectors such as airlines, property, oil and gas, hotels and tourism, have borne the brunt of the pandemic-induced lockdowns, whilst sectors such as glove manufacturing and technology have seen growth. In her opinion, the banking sector would be most affected, particularly the commercial banks that serve as proxies to an economy. She stated that these banks were devoid of income in the short and medium terms, given the moratoriums offered, yet they continued to pay depositors. She highlighted that survival of these banks would depend on two factors, the availability of reserves and credit quality. Cash flow and liquidity are the primary areas of concern, before moving onto profitability. NORIPAH KAMSO Co Chairman Islamic Finance Industry Council Malaysia U.S. Chamber of Commerce KHALID HOWLADAR Senior MD / Head of Credit & Sukuk R.J. Fleming & Co. climate change, which she opined is the need of the hour. From an Islamic perspective, she opined that it was up to these stakeholders to collectively create a level playing field amongst the society, to ensure that communities come out of this pandemic stronger together. Howladar shared a different viewpoint noting that developed economies have been built on a debt-based system, adding that this debt-fuelled consumption approach is not the best way forward, given the resulting downfalls that are fast becoming evident in the midst of this pandemic. This is where he viewed Islamic banks as having an opportunity to shift the mind-set to more equity type of investment surrounding risk and profit-sharing principles, particularly towards small businesses, start-ups and entrepreneurs, the key drivers of most economies. He cited that COVID-19 was an ideal time to make this change, rather than waiting for the economic situation to worsen further before taking action. To conclude the event, Vicary put up a final audience question surrounding the role of Shariah boards of Islamic finance institutions and their role in pushing towards the adoption of value-based intermediation practices. This was initially taken by Howladar, who said that government direction and leadership are key to achieving this. He further noted that Shariah boards alone are not able to influence this drive without the support of governments as Shariah boards are not drivers of change, rather they are crucial pillars to facilitate change. Kamso shared that in her experience, Shariah compliance still remained very limited around adhering to regulatory requirements. However, what is more important is to integrate these values and take it a step further by broadening the scope of Shariah practices. She added that it is imperative for Shariah Boards to work together with management Boards in driving the change forward. Howladar had a different perspective to Kamso, stating that he was not as concerned for the banking sector, noting that banks have learned from the previous global financial crisis, and compared to a decade ago, banks today are more resilient, less leveraged, and more capitalised. Added to this, he reiterated that banks were quick to OPPORTUNITIES receive support from their respective central banks, as the banking industry could not be allowed to fail, given their role as accelerators Shift to equity type of investment to the economy. Howladar’s fears were more alluded towards Terms' individuals and local communities that have in some cases, witnessed Accelerate digitalisation a complete wipeout of their main sources of income and livelihood. Flexibility Howladar explained that these individuals could not survive in Adopt collective leadership isolation, given that majority of them are unbanked, have no sick pay, and no social welfare. He added that most of the government stimulus has not been reaching these individuals who sit at the Strengthen social solidarity bottom of the food chain, and this is the biggest threat in the wake of Relationship the pandemic. Reciprocity Create circular economies building Opportunities provided by COVID-19: Kamso saw an opportunity for collective leadership amongst the development agencies, government and regulators, civil societies, as well as the private sector to work cohesively and manage the effects of COVID-19 and Push towards diversification into renewables Watch again on IslamicMarkets.com