Chapter in Book

COVID-19 is considered by some as a 'black swan event', which is a pandemic that is unpredictable, unprepared for, and totally spontaneous (Gubler, 2020). This pandemic is different from four other recent pandemics the world has witnessed within the last 25 years (Gubler, 2020) as its impact has created not only a health crisis, but has led to an economic as well as human crisis brought due to a halt in all major economic activities in the world. The impact of COVID-19 on the sudden increase of poverty is uncontainable. By 12 March 2020, the World Health Organization (WHO) declared COVID-19 a pandemic, as, since December 2019, the disease had been spreading worldwide, putting the world population at risk. Simultaneously, the number of unemployed increased turning back the poverty clock (Kharas & Hamei, 2020). This is because as Sumner et al. (2020; p.2) state: 'global poverty could increase for the first time since 1990 and, depending on the poverty line, such increase could represent a reversal of approximately a decade in the world's progress in reducing poverty'. They also observe that in some regions, the poverty levels could be what they were exactly 30 years ago (Sumner et al., 2020) ruining the progress that has been achieved by the world so far in this regard. According to the International Labour Organization (ILO), the continuous decline in working hours globally due to COVID-19 means that 1.6 billion workers in the informal economy, which is nearly half of the global workforce, are at immediate risk of losing their livelihood (ILO, 2020).

This chapter explores the impact of the pandemic on Islamic commercial finance and Islamic social finance in a comprehensive manner. The chapter reveals that COVID-19 has provided more opportunities to Islamic social finance than Islamic commercial finance. The beauty of Islamic finance in this regard is reflected as the perception that Islamic finance does not achieve its objective as being a social finance is proved to be false as Islamic finance not only promotes profit maximization, but it has also the potential to achieve social objectives. Islamic commercial finance developments could be slower, but it is anticipated that Islamic social modes of financing will be used widely even by multilateral agencies to assist the communities who need help in this pandemic. The most important lesson one could learn from this pandemic in relation to Islamic finance is that Islamic finance is truly different from conventional finance and as such, it needs a unique legal, regulatory and governance framework to display the true potential of it.