Islamic finance provides socially responsible products and the COVID-19 environment could give an opportunity to leverage them, a report by S&P Global Ratings showed.
Measures to combat the spread of the virus have significantly slowed core Islamic finance economies; leading to higher expected unemployment rates as companies implement measures to reduce their costs amid declining revenue, according to the ratings agency.
S&P has listed the below four Islamic finance social instruments that can help core Islamic countries, banks, and corporations navigate the current situation.
- Qard Hassan: This instrument is 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,” S&P said.
- Social sukuk: A sukuk where the rate of return declines if the issuer fulfills certain social objectives.
“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),” S&P said.
- Waqf: 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,” S&P said.
- Zakat: Similar to a tax levied on wealth over a certain threshold.
“Based on our conversations with market participants, we believe that Zakat could help compensate the loss of income for households because of COVID-19,’ S&P said.
(Writing by Gerard Aoun; editing by Seban Scaria)
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