Graduate Fellow, Universiti Sains Islam Malaysia

The 2019 pandemic caused by the coronavirus disease (COVID-19) is a new tragedy for the human civilisation. It was first identified in December 2019 in Wuhan, China and spread rapidly, resulting in an on-going global epidemic. As COVID-19 primarily spreads between people during close contact, either via coughing, sneezing, or talking, social distancing became the leading prevention approach.

Due to the lockdown order, economic activities have been affected and as a result, many are losing their jobs and income. Although charitable institutions, including the Islamic social finance instruments such as zakat, sadaqah and waqf are able to secure basic needs for the underprivileged individuals, other groups of the community are also suffering in the wake of the COVID-19. The unemployment rate is increasing and many businesses are closed for good. Thus, this is a likely sign that a bankruptcy threat is looming and its unexpected effect on the non-performing loans taken by these unfortunate people, and towards the financial institutions and the economy as a whole. The United Nation University estimated that the economic fallout could push an estimated half a billion people into poverty and take global development progress back three decades, primarily in emerging economies. In higher-income countries, stimulus packages are unlikely to reach those already excluded from the economic mainstream. Recently, the International Labour Organization (ILO) warned that the steep decline in the ability to work and operate due to the pandemic is threatening the livelihoods of 1.6 billion workers in the informal economy, almost half of the global workforce. Therefore, in order to balance the economic situation during the COVID-19, a vital solution is needed. In this situation, the existence of Islamic social enterprise (ISE) is crucial in order to solve market failures and demonstrate a sustainable model to build inclusive economies with resistance to the crisis including the COVID-19.

 Effect of COVID-19 on Islamic Economy

 It is too early to examine the impact of COVID-19 on the Islamic economy. However, based on previous evidences, during the global financial crisis 2008-2009, Islamic economy proved to be resilient because of the nature of Islamic finance and the social finance products and instruments, which offer a balanced solution to channel funds to end-users and to not increase the level of debt at the same time. The early positive impact of Islamic finance during the COVID-19 can be assessed from the Islamic capital market performance. Despite the adverse market movement in the first quarter of 2020 due to the COVID-19, S&P and Dow Jones reported. that their Islamic indices outperformed their conventional benchmarks. This happened due to the advantages set by the Shari’a screening criteria where it forbids investment in excessively leveraged companies. In this case, Islamic indices with low leverage portfolios performed better in down markets and had better stock selection albeit with lower diversification. Meanwhile, the Islamic Development Bank (IsDB) through its Islamic financial instruments is also contributing to support Islamic economies. So far, a total of USD2.3 billion has been approved to be channelled towards preventing, mitigating and recovering from the COVID-19 pandemic. The latest contribution made by the IDB is to support innovation in minimising the adverse impact of the pandemic on its member countries. By referring to the COVID-19 situation from a maqasid al[1]Shari’a perspective, Islamic finance and social finance can become effective tools to support the public especially in the aspect of wealth preservation (hifz-ul-mal). This is because Islamic finance and social finance has the ability to provide social assistance and financial subsidies to support the burden faced by the common person. Besides consisting of a wide range of products and instruments, Islamic finance and social finance is also able to have a positive impact on individuals, industries, communities, nations and even the global market. Islamic finance and social finance can play significant roles both in short-term and long-term stages to overcome the impact caused by the COVID-19. One of the main players who able to integrate Islamic finance with social finance is the Islamic social enterprise.

Why Islamic Social Enterprise?

 In general, ISE is one of the many forms of organisations established to fill the gap between the traditional for[1]profit and the not-for-profit structures. The rise of ISE has been driven by several push factors, including the lack of involvement of public sector organisations in social activities, conceptualisation of the market, growth of self-reliance and personal responsibility culture, growth of entrepreneurship and also changes in funding within the non-profit sector. ISE demonstrates how both social and business objectives can be combined under a single entity, whose main economic activities are classified as non-profit in nature. Therefore, it can be concluded that the existence of ISE is to solve the market and the government failures by serving the excluded and vulnerable populations, who are most at risk to the impacts of COVID-19. It is an undeniable fact that COVID-19 has impact almost every economic sector including the ISE. In this case, although ISE have benefited from tax exemption and gained support from the public, its economic activities are affected along with the private sector organisations. However, as ISE possessing integrated characteristics including involvement with Islamic social and economic finance, it has been seen that ISEs have a bright potential to overcome the COVID-19 impacts. For instance, as ISEs are able to collect and distribute Islamic charitable funds such as zakat, sadaqah, waqf and qard hasan, these instruments can be used as an emergency support to solve the adverse impacts of the crisis. Zakat funds particularly can be used to support those who have been facing financial insecurity, as one of the main rules of zakat is that it needs to be distributed within one year of it being collected, this urgent factor suits the nature of the COVID-19 pandemic. Besides, qard hasan as a free-interest loan can also be offered to individuals and businesses to function until the environment is stabilised. This will especially allow business owners to continue to function sustainably and avoid layoffs and closure, they can also run incubation and acceleration programmes that would guide and invest in entrepreneurs by nurturing them and supporting their solutions. In this case, ISEs can benefit if they receive qard hasan from Islamic banks as support for them to maintain their operations and activities during such crisis, especially the COVID-19. Moreover, several Islamic finance instruments such as waqf and sukuk also can be used by ISEs for recovery and resilience in the economy. Waqf is potentially becoming another important contributor in the fight against the COVID-19 impact. Financial and non-financial waqf can be dedicating for use by ISEs for social purposes or as a supporting mechanism to the needy, creating a long-term impact for the beneficiaries. For example, waqf properties owned by ISE can be utilised by waving its rental fees for a certain period of time to ease the burden of the tenants. While, sukuk can become the source for the government and social organisations, such as ISE, to fund the various development projects for the benefit of the public by seeking investors who are looking for social investment. In the case of COVID-19, sukuk can be issued by the government to have adequate funds for them to conduct fiscal policies such as providing adequate equipment for the health care industry that is in the front line of the battle. Besides, the government can also channel part of the sukuk funds to ISEs to conduct social activities as feeding the hungry, improving access to clean water, ensuring the learning of children as well as keeping in-touch with the public as a whole to warrant their mental health and wellbeing.

How Islamic Social Enterprise Can Fight COVID-19?

After discussing the potential roles of ISE during the COVID-19 due to its special characteristics, another question was raised. How are ISEs able to fight the impact of COVID-19?

 To answer the question, several initiatives can be proposed. For instance, food and financial support can be provided for individuals whose incomes have been affected due to the lockdown or any other impact of the pandemic. In this case, ISEs can cooperate with zakat and waqf institutions by using zakat, waqf and sadaqah funds to provide such aids. Besides, ISE also can give similar aids for COVID-19 front[1]liners such as doctors, nurses, polices and soldiers in terms of cash and food. Moreover, ISEs also can support in fighting the COVID-19 by providing or even producing medical equipment such as surgical masks, face shields, personal protection equipment (gowns, hoods and boot covers), gloves, medical material (e.g. filling hygienic gels) and others. In fact, some other social activities can also be conducted by ISEs including performing disinfecting processes in public areas and buildings such as mosques, halls, bus stops, public centres and schools. ISE can also provide essential medical healthcare at these public areas, such as face masks, hand washes and hand sanitizers for public use. Also, ISEs who are involved in the agricultural sector can play their part by hiring those who are unemployed due to this epidemic and expand their productions by collaborating with local governments to provide them abundant land for this purpose. This is because currently majority of the countries are affected and the lockdown order has restricted the import of goods including food and this initiative will be able to maintain a sustainable food chain in the future as well. Furthermore, COVID-19 also has a profound mental effect on people as a whole. ISE can support the mental well[1]being of people by providing motivational videos and remote mental health services or encouraging people to exercise and eat well. Besides, free mental health sessions can also been provided to overcome this issue. Similarly, awareness on COVID-19 can also be provided by ISEs by encouraging and supporting health campaigns such as ‘stay at home’ activities and self-healthcare activities.


In a nutshell, it can be concluded that ISEs have potential roles to play, especially in promoting the well-being of the economy and the people during the COVID-19 pandemic. Besides, the integration of Islamic finance with social finance by the ISEs also made them capable of delivering both the social and economic objectives. It is believed that with the advantage of technology, ISE will be able to achieve the maqasid al-Shari’a through these Islamic finance and social finance instruments, i.e., to treat every member of the ummah as brothers and sisters, and reach them with right intention in terms of a pandemic-like situation.



Islamic Economist

Islamic Economist

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