Socioeconomic Impact of COVID-19 in MENA region and the Role of Islamic Finance

Abstract

This paper analyses the socio-economic impact of the noble Corona virus (COVID-19) on ‘Middle East and North Africa’ (MENA) region as well as the role and opportunities of Islamic finance post COVID-19. The findings show that pandemic has affected the MENA region massively like any other region in the world. Since around 69% of the word’s crude oil supply is from this region alone, this causes it to suffer from dual shocks of COVID-19 pandemic as well as the declining crude prices that is caused by shocks from both ends, negative supply shock and a negative demand shock. The 19 countries in MENA region include from some of the richest countries of the world such as, Qatar, Kuwait, and Saudi Arabia, to some of the most vulnerable, poor and war ridden countries like Yemen, Syria, and Morocco. To mitigate the adverse effects of the pandemic, we suggest some immediate actions that can be taken such as a public fund to support health system, financial support to individuals and SME’s, financial support to corporations in order to prevent job loss and layoff and assurance of liquidity in domestic markets to prevent liquidity crunch. Finally, the paper analyses the role of Islamic finance in the region in recovery post COVID-19 and show that Islamic finance can be utilized as an alternative financial system in providing the relief to the COVID-19 affected people and entrepren

Islamic Financing Effects on Small Medium Enterprises Competitiveness

“…Notwithstanding these advantages and significant potential, Islamic finance still has a huge responsibility to go before it can reach its full potential. It now accounts for less than 1% of financial market resources and is still heavily concentrated in a few markets (Diallo & Gundogdu, 2021;Hassan, Rabbani & Abdulla, 2021;Octrina & Mariam, 2021;Man, 2009). Despite its significant growth pace, the Islamic financial system, which operates alongside the traditional market, is subject to many of the same structural adverse outcomes and volatility as its conventional counterpart.…”

“…The Islamic financial concept has risen in importance globally over the last three years due to the significant benefits it provides, such as investment expansion and the potential to draw and enhance a nation's incentive to invest (Shah, Sukmana & Fianto, 2021;Diallo & Gundogdu, 2021;Osman 2012;Ahmad, 2008). This is shown by the Islamic financial industry's substantially high compound annual growth rate, which coincided with the global COVID-19 pandemic (Hassan, Rabbani & Abdulla, 2021;Octrina & Mariam, 2021;Adams, 2020).…”

“…According to projections, 600 million employment opportunities will be expected in the next fifteen years to accommodate the increasingly global workforce, with the majority of these jobs being located in Asia and Sub-Saharan Africa. The majority of formal employment in developing economies is with SMEs, generating four out of every five new jobs (Hassan, Rabbani & Abdulla, 2021;Octrina & Mariam, 2021;Adams, 2020).…”

Pandemic Attack and Islamic Stocks Index: A Cross Country Analysis

“…The ensuing uncertainty has also resulted in gold and bonds to become safe choices for investment. Hassan et al (2021) pointed out that the pandemic had massively affected the MENA region. Approximately 69% of the world crude oil supply comes from the region, thus resulting in a decline in crude oil prices due to attendant negative shocks.…”

“…Recent studies that specifically and empirically examined the impact of Covid-19 on the financial and economic systems include Phan and Narayan (2020), Akhtaruzzaman, Boubaker, and Sensoy (2020), Kinateder, Campbell, and Choudhury (2021), and Hassan, Rabbani, and Abdulla (2021). Haroon and Rizvi (2020) focused on stock market liquidity while He, Sun, Zhang, and Li (2020) examined the impact of COVID-19 on different stock market sectors.…”