Just as Gulf Times reported last week that a number of Islamic finance umbrella organisations worldwide were assessing the potential damage the coronavirus crisis has inflicted on the economies and Islamic finance industries of its 57 member states, the Islamic Development Bank (IsDB) came out with the announcement that it has set up an emergency funding line to tackle what it called a “multifaceted crisis.”
According to a statement released on March 17, the IsDB set up a special “Strategic Preparedness and Response Facility” at a volume of $730mn “in order to support its member countries in this time of need” and “to mitigate the negative health and socio-economic impact of the pandemic.”
The emergency funding includes $280mn from the IsDB’s Bank and Islamic Solidarity Fund for Development to be used for sovereign projects and programmes, $300mn from IsDB’s division International Islamic Trade Finance Corporation to support trade finance among member countries, as well as $150mn from another division, the Islamic Corporation for the Insurance of Investment and Export Credit, to be applied to insurance coverage.
Apart from supporting emergency measures to curb and contain the spread of the coronavirus and minimise the impact of the pandemic especially on the poor, the fund will support Islamic and conventional banks in member countries by extending financing for corporations, private businesses and small and medium-sized enterprises in the form of grants, concessional resources, trade finance, private sector lending and political and risk insurance coverage.
The trade financing support will be in short-term rapid response initiatives, mainly aimed at enabling member countries to purchase medical equipment and supplies to enable the private business sector to recover from the impact of the crisis and enable revival of trade and supply chains in strategically important sectors. The insurance emergency package will provide credit and political risk insurance to sustain imports of strategic commodities, investment protection and to minimise volatility, the IsDB said.
Among the ten IsDB member countries hardest-hit by the coronavirus crisis are Iran, Malaysia, Turkey, Pakistan, Indonesia, Egypt, Lebanon, Iraq and Algeria, with together 26,910 reported cases and 1,835 deaths as of March 23. Iran, which holds one of the largest membership stakes of 8.25% in the IsDB, was among the first to send a request to the development bank for “urgent financial and non-financial assistance” to control, combat and treat the coronavirus and tackle the economic impact of the pandemic on the country.
The IsDB is indeed expected to react quickly. Iran’s banking system alone, which is totally regulated by Shariah law, is of systemic importance for the global finance industry even though it is more or less decoupled from the international banking network due to sanctions. Iran’s banking assets make up more than 40% of the total Islamic banking assets globally, making it by far the world’s largest centre of Islamic banking and finance. Three of the world’s largest Islamic banks by assets are domiciled in Iran, and the country is also one of the largest sukuk issuers.
Together with Malaysia, Qatar, Turkey, Indonesia and Egypt, the hardest coronavirus-hit countries are also the ones with a large asset share in the global Islamic finance industry and a virus-caused disruption of their financial system would likely shake the foundations of the global Islamic finance industry.
“We call for strong global co-ordination and collaboration for immediate response and medium- to long-term interventions,” IsDB president Bandar M H Hajjar said, adding that “we will work hand in hand with all partners for a united action to overcome this pandemic.”
The IsDB will also co-operate with development partners such as Arab Co-ordination Group, an organisation which comprises bilateral and multilateral Arab development institutions, the Opec Fund for International Development and the Asia Infrastructure Investment Bank to mobilise resources to support member countries, Hajjar noted.