Since the coronavirus pandemic is wreaking havoc in economies all over the globe, in this column we have repeatedly turned the spotlight on the role of Islamic finance in easing the woes the pandemic is causing, particularly for those less well-off, including the neglected and vulnerable population bracket in developing countries.
Islamic finance is for many akin to socially responsible investing because it is rooted in beliefs that investing should be, first and foremost, responsible in terms of its profit motives and overall ethical value, namely arising from the requirement of risk-sharing and abstaining from investing in ‘haram’ industries. That said, a large number of scholars and commentators are acknowledging Islamic finance as a means to address developmental challenges, eliminate extreme poverty and enable a higher level of prosperity in developing and emerging economies.
This is obviously going further in current times of hardship, with many recognising Islamic finance as a tool to withstand the catastrophic fallout of a virus pandemic unseen in recent history. And it starts at the top: The United Nations Development Program (UNDP) in a release on April 23 has earmarked no less than three Islamic finance instrument that are predestined to be deployed in order to ease financial hardship amid the coronavirus pandemic for a variety of affected groups.
“We are convinced that Islamic finance can be part of the Covid-19 response through a range of financing instruments well-suited for each stage,” says Aamir Rehman, senior advisor on Islamic Finance at UNDP.
For emergency relief in the short term, Rehman finds zakat – charitable contributions by the relatively wealthier in Muslim societies to the disadvantaged out of individual philanthropy – to be an important component of national and NGO emergency support programs. Zakat are often cash donations or, in some jurisdictions, an obligatory “tax” calculated on stocks, shares and bonds due on the balance of the investment accounts, meaning principal plus profit. 
Since zakat needs be disbursed within one year of being given at the latest, it is well suited for crisis response, Rehman says, adding that zakat is favored as “a broad tool” that can be used for medical assistance, food distribution, emergency cash handouts and other immediate needs.
As a medium-term response to the economic disruption caused by the virus, the UNDP has identified impact investing as a viable means to recovery. Although impact investing is not confined to Islamic finance in any way, the latter’s nature, which generally emphasises and prioritises social impact of investments, makes it an ideal tool for providing capital to deliver social outcomes. This means that Islamic impact investing, be it in the form of bonds, impact funds, project financing, loan guarantees, equity investments in charitable organisations, endowment funds or donor funds, can do a lot when directed towards healthcare, water and sanitation, food security, housing and energy provision and, later on, the financing of equipment, vehicles and other sources of livelihood, and even trade finance, which are key areas where Islamic impact investing can support recovery. In other words, it is an innovative financial tool that enables investors to pay only for programs that deliver intended results. For long-term recovery and resilience, the UNDP sees both sukuk and waqf as important means to gets thing back on track. Sukuk and its newer variations such as green sukuk and sustainable and responsible investment (SRI) sukuk can propel long-time development projects mainly on government and public-private-partnership  levels and thoroughly help rolling back the damage done by the virus pandemic.
“The pandemic has made long-term funding for development all the more crucial,” says Rehman, noting that the UNDP is partnering with a number of Islamic jurisdictions to issue impact sukuk.
Last but not least, waqf – charitable endowments under Islamic law involving donating a building, plot of land or other tangible assets or their usufruct rights – play another important role in tackling the devastation of the coronavirus pandemic by providing non-financial assets to set up much-needed social infrastructure, including hospitals, accommodation, community kitchens or testing facilities.
“As the global community responds to the coronavirus pandemic, stakeholders must be engaged to address the enormous challenge to ease immense human suffering, and Islamic finance can be part of it,” Rehman notes.
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