The Impact of COVID -19 to the Malaysian Social-Economic and Islamic Banks, and the Role of Maqasid Shariah

Abstract

The COVID-19 outbreak is a global health issue that has hit countries around the globe. This pandemic has further been detrimental to the world’s socio-economies. The many restrictions implemented to curb the spread of the virus, such as the Movement Control Order (MCO), have resulted in socio-economic constraints that harm the commercial activities of individual businesses as well as corporate organisations. The MCO has also been alleged to negatively affect people’s mental health due to its impact on decreasing household income and exacerbating poverty. The banking sector is not immune to the pandemic’s effect, as reflected in its financial performance. As a result, the Malaysian government responded by announcing stimulus packages for businesses and retail sectors. At the same time, the financial institution through the Bank Negara Malaysia (BNM) remains committed to helping households and businesses. Thus, this paper aims to discuss the impact of COVID-19 on the performance of Islamic banking institutions from a socio-economic lens by comparing the first and second-quarter profits of the years 2019 and 2020. This study also looks into the roles of Maqasid Shariah and its application during the pandemic. Content analysis was applied as a tool for data collection from related websites, news and quarterly financial reports to analyse the performance of the banks. Analysis of the quarterly financial reports found that bank profit demonstrated a steep decline during the second quarter of the said period, constant with the middle of the MCO time frame. The study also found that the analysed banks reported non-financial performance reflected by Maqasid Shariah measures. This finding indicates that Islamic banks are responding to the need of society to ease the burden of adverse financial impacts on customers. Therefore, this research implicates that various parties have played their role and continue to do so in mitigating the consequences of COVID-19. This role emphasises the value of achieving Maqasid Shariah to maintain societal wellbeing and in helping the country implement sustainable growth plans. Accordingly, this study can function as a guide and serve as a lesson to all parties in reducing the effect of the current pandemic and any other shocks, including natural disasters and the financial and economic outcomes of the recession.