Islamic finance had bright prospects for 2020 in the Ivory Coast; however, a series of unfortunate events ended up completely suppressing any hint of growth. Hopefully, these obstacles can be quickly overcome to help the country move forward in 2021.
Review of 2020
The Ivory Coast in general had not expected such a drastic impact from COVID-19 on the economy. Islamic finance was obviously not spared from this disaster. The Central Bank of West African States (BCEAO) has taken a little more than 10 measures to mitigate the impact of the pandemic on the banking system and the financing of economic activity in the region in general and the Ivory Coast in particular. Islamic financial institutions are more vulnerable because they have to meet the obligations of these measures without enjoying the benefits.
In fact, in March 2020, faced with the severity of the COVID-19 health crisis, the central bank decided to increase the liquidity of the banks in the region including that of the Ivory Coast with support of XOF340 billion (US$603.5 million). This support could not benefit the Islamic finance system because the funds are based on an interest system.
These measures are accompanied by obligations such as the agreement to postpone repayment deadlines for companies affected by the pandemic and which are encountering difficulties in repaying the funds granted to them. Admittedly, this possibility is endorsed by Shariah for Islamic banks, but the refinancing window of the central bank is not Shariah compliant, so these Ivorian Islamic banks are finding themselves in a delicate situation.
It is important to note that in June 2020, the BCEAO launched the recruitment of a consultant responsible for the development of draft Shariah governance guides and standard contracts for products and services in line with Islamic finance.
Preview of 2021
For 2021, more interventions by Islamic banks are expected to be seen in the development of the local economy to curb the effects of COVID-19. The predictions of expansion and development of the Islamic financial system will either be annihilated or diminished given the new wave of infections raging in the west.
At the regulatory level, there is hope for the publication of a Shariah governance guide by the central bank to harmonize governance and contractual documentation in the Ivorian Islamic financial system.
Although much hope was placed on 2020, the pandemic crisis has imposed a status quo on Islamic banks and microfinance in the Ivory Coast. The central bank provided a number of responses to COVID-19 but these, unfortunately, did not take into account the specificities of the activity of Islamic finance. The future in 2021 is a little more worrying given the wave of infections in the west. However, a strengthening of the regulatory framework for Islamic finance by the BCEAO offers some hope for the future.
Abbas Cherif is CEO of Islamic Finance Intelligence and Management (IFIM). He can be contacted at [email protected]