ISLAMIC FINANCE – IS THIS THE SILVER LINING IN COVID-19?
By Viola Llewellyn
Africa’s accuracy has been a challenge when it comes to numbers and data. According to a June1st AfricaNews.com update, there have been over 140,000 confirmed cases of Covid-19 in Africa. Lesotho reports only 2 active cases, and Egypt is leading the peak with almost 25,000 cases.
The total recovery rate for the entire Continent is 61,773 and deaths reported is 4,223. Because there has not been wide-spread testing, and testing did not become available to all at the onset of the pandemic, it is hard to know what the true numbers really are. Put this against the backdrop of 1.2 billion people and the image is not as dire as reports from various media outlets claim. Businesses are not shrinking in number the way some have predicted, but survivability is impacted by the lack of digital solutions to meet the ’new normal’. Diminished liquidity and stimulus programmes are not easily available to shore up business continuity.
But despite the weak health systems, early border closures and the common-sense actions of everyday citizens has helped alleviate the worst of the pandemic. African countries as a whole are doing remarkably well considering. This resilience which was demonstrated expertly during the Ebola crisis has again contributed to keeping economies afloat and businesses ’still in business’.
As with the weakness seen in the healthcare systems of some African countries, weaknesses have revealed themselves in the banking system where full digitization has not been fully embraced to provide an effective response to Covid-19. Lending is a paper-heavy process for most African banks. There is a great reluctance to leave 'the paper’ behind and embrace efficiencies from digital solutions. Unsecured lending was already out of reach for most small businesses; this has created a space for alternative finance options. Ovamba was an early pioneer of Islamic solutions and digitized a Murabaha for SMEs back in 2017, and adapted it for Banks to license in 2019. Assisting banks with an “inventory-centric” digital solution to resolve their customers capital needs helps to reduce the impact of Non-performing loans and protects precious bank margins during this time of uncertainty.
The relevance of Islamic finance solutions for our current times should not be underestimated. In fact, the ethical nature of Islamic Finance closely aligns itself with the serious consequences of the virus and the moral imperative to protect the health of customers and staff. Islamic finance is rooted in how Risk is respected and shared. Islamic finance demands a careful approach to ensuring fairness and equity.
Other FinTech solutions are finding their ’time in the sun’ during this pandemic. Digital innovations to integrate payment solutions, mobile wallets and digital currencies with customer bank accounts could save financial institutions, but they have been slow to make the final leap across the digital divide. Ovamba has rolled out enhanced work flow and risk management with anti-fraud processes to support online transaction applications for bank staff working from home who cannot sit down with customers face to face due to the contagion.
It has been an interesting time for finance, businesses, banks and innovation. It can be agreed that Covid-19 pushed African businesses to address digital inclusiveness and disaster recovery sooner than they might have liked. I
In the months to come, we expect to see engagement from Central Banks as they endorse policies to support digital adoption and push for even more financial inclusion. For the business owners who survive Covid-19, they will be looking to thrive and digitally future-proof their businesses and revenues from the impact of future pandemics, because what is now certain in life, other than death and taxes is the likelihood of another pandemic, and there WILL be more of these types of these health-related economic disruptions in the not too distant future.