The storm shall pass

Volatility is built into the DNA of the financial markets and while we may embrace and live by this truth, nothing could have prepared us for what 2020 unleashed.

To say that the COVID-19 pandemic ground the world to a halt is perhaps not an overstatement. Economies paralyzed, borders shut, governments scrambling to find a solution as the number of infectious cases and deaths continued to climb – such chaos at such a scale, is unprecedented.

One year on since the coronavirus bared its fangs, we are still navigating this “new” normal, with many still hoping to return to pre-pandemic normalcy – although that is unlikely, at least not for a few years as the damage caused has been so severe.

It has been a painfully challenging year, with lives and livelihoods lost. For the optimistic, it has been a period of real test of the industry’s resilience; and resilient the industry has been.

If we look at the Sukuk asset class, the industry’s poster child: we see that the market showcased encouraging figures with more Sukuk issued in the first three quarters of 2020 at US$130 billion against the same period in 2019. The return on investment-grade dollar Sukuk until November 2020 was about two percentage points higher than the average annualized return for five-year papers. And if anything, the pandemic has been a much-needed trigger to catalyze the growth of sustainable Sukuk, with governments (such as Malaysia and Indonesia) and multilateral organizations such as the IsDB going to market with landmark offerings designed specifically to combat the fallout of COVID-19.

For the Islamic banking sector, like its conventional counterpart, it has been wrestling with deteriorating asset quality and tighter liquidity. Yet, Islamic banks are still posting growth, albeit at a lower level. And more significantly, the pandemic has compelled Islamic banks to expedite their digital strategy, deploying and adopting technology at a pace which would not have been possible without COVID.

Despite a global oil price crash, a deadly virus, and messy geopolitical developments, Islamic funds have been impressive at garnering more traction: mid-November 2020 data shows that global Shariah funds assets under management grew above US$165 billion from 2019’s US$105 billion. And as expected, at a time when risks and uncertainties have become center stage in our lives, the appreciation for Takaful insurance as a risk management instrument has deepened across many markets.

It is incredibly easy to focus on the bad rather than the good – it is almost human nature to do so. But to manage any calamity and turmoil, hope, optimism and gratitude are of crucial importance. Thankfully, the industry – which we have continuously engaged – is keeping its chin up, and is seeing rays of opportunity in this dark storm.

The industry has benefited from rapid digitalization and ‘fintechization’; the role of Islamic finance – particularly philanthropic and Shariah social finance instruments – as a tool for financial inclusion and to meet development needs has been vindicated; and the confluence of ethical and Islamic finance has never been stronger.

Nobody is denying that 2021 will be another challenging year nor that it will be a long journey to recovery – as elaborated by the many experts who have authored and shared their projections for the industry in this seminal publication. But many, backed by historical data and recent performance, firmly believe in the value, resilience and solidarity of the industry; and together, we will weather this storm as we have always done.

Vineeta Tan
Managing Editor
IFN