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Islamic Financial Institutions Launch Innovative Additional Measures in Mitigating COVID-19 Disruption Including Customer Debt Write-offs and Healthcare-related Investment Notes

Sometimes adversity brings out the best in society. The health, economic and social impact of COVID-19 has been painful for all countries. Governments have responded with rescue packages and with the emergence of second and third waves due to multiple mutations and variants of the coronavirus, these packages have had to be extended causing further financial and economic disruption.

Islamic financial institutions like their conventional counterparts have shown a remarkable resilience in coping with the impact of COVID-19 with payment holidays, write offs and a rapid albeit unscheduled move towards financial digitisation. But some institutions are going that extra mile in helping their customers, and thereby their countries’ economies and innovating new ways of dealing with the implications of the pandemic.

Kuwait Finance House (KFH), one of the oldest Islamic commercial banks, for instance in February 2021 wrote off US$65 million in customer debts releasing approximately 10,000 defaulting debtors and others against whom litigation was initially started. The debt forgiveness action happened following collaboration between KFH and Kuwait’s Ministry of Justice.

According to Abdulwahab Essa Al-Roshood, Acting Group Chief Executive Officer at KFH, given the disruption caused by COVID-19 the KFH Board of Directors approved the debt forgiveness initiative under the Bank’s corporate social responsibility (CSR) strategy and Sharia’a financial principles. The initiative was piloted in mid-2020 but given the large number of debtors especially from the poorer sections of society, KFH in consultation with the Ministry of Justice, which has administered the process as an independent arms-length party, has decided “to continue the initiative this year as well and expand its scope to include a larger number of debtors as part of the CSR strategy.”

Al-Rashood also confirmed that its wholly-owned entity in Bahrain, KFH Bahrain, has also implemented a similar customer debt relief programme in collaboration with the Bahraini Ministry of Justice. “As part of its national commitment toward Kuwait and its people, KFH has made various contributions to support Kuwait’s efforts to combat the Coronavirus crisis, while being the largest contributor to the KD 10 million CBK fund to support the government`s efforts.” he explained. In fact, KFH has since then doubled its contribution to the fund.

Another pioneering Islamic financial institution, Abu Dhabi Islamic Bank (ADIB), has come up with an investment offering for customers aimed at the healthcare sector. In late January 2021, ADIB launched a new healthcare-focused equities basket note. The structured note provides 95% capital protection, while offering no cap on the potential return and matures in 12 months.

According to Saif Alkeem, Head of Wealth Management & Priority Banking at ADIB, “healthcare is one of the sectors that has seen strong investor interest during this pandemic induced era. The launch of this new Sharia’a-compliant healthcare equity basket note provides exposure to leading international healthcare companies primed to capitalise on such trends in a post-COVID-19 world. It is expected to offer strong returns with limited risk to their capital. As a bank, we will continue to develop tailored wealth management solutions to customers which allow them to meet their financial goals through a diversified investment portfolio.”

Healthcare stocks have received considerable attention over the last year due to COVID-19, which has increased the need for effectual treatments and a race for a proven, safe vaccines. The Sharia’a-compliant 1-year product matures provides investors with access to leading international healthcare companies and is designed to capture the projected growth of companies involved in the research and development, manufacturing, and selling of treatments, medicines, and vaccines.

Not surprisingly, the equity basket includes stocks of companies such as Merck & Co, Gilead Sciences, Johnson & Johnson, Sanofi and Novartis, which have a diversified portfolio of pharmaceutical products that attract consistent demand around the world.

The note is more aimed at high net-worth investors because it has a minimum investment commitment of US$50,000 and customers will have the option to redeem their investment after a three-month lock-in period.

In the digitisation drive, KFH for instance also launched in February 2021 its instant cross-border payments service to its subsidiary, KFH-Turkey using Ripple’s technology, the enterprise blockchain solution for global payments, which allows customers to “make instant transfers to Turkey for personal expenses or investments with zero-fees on a 24/7 basis in a secure and fast manner through KFH Online service and a mobile App.”

KFH has also recently pioneered a digital service of opening a gold account with options of selling, buying and trading online, and ongoing efforts in utilizing AI and teaming up with Fintech for the best interest of customers, while moving forward in its digital transformation strategy.

On the multilateral front, the Islamic Development Bank (IsDB) Group is the most proactive in launching and implementing COVID-19 mitigation funding solutions ever since it launched its initial UD$2.3 billion pandemic package in April 2020. In February 2021 The International Islamic Trade Finance Corporation (ITFC), the trade fund of the IsDB Group, launched the 2nd Phase of the Aid for Trade Initiative for Arab States (AfTIAS 2.0) to motigate the effects of COVID-19 on trade in the Arab region.

At the virtual launch attended by partners and high-level officials, Dr. Bandar Hajjar, President IsDB Group reiterated that the IsDB “gives great important to trade, and believes that AfTIAS 2.0 will act as a catalyst for cooperation between Arab countries and organizations that will contribute to achieving comprehensive and sustainable development in the Arab region, relying on trade as a force and a driver for development, job creation and prosperity.”

ITFC CEO, Hani Salem Sonbol, disclosed that “in the coming days, ITFC will begin, in coordination with the Programme’s focal points in the Arab countries, to receive initial requests from countries to consider projects that are eligible for financing according to the conditions and standards approved by the AfTIAS Programme.”

The IsDB and ITFC also signed an Agency Agreement on 21 February 2021 to facilitate the implementation of the Group’s COVID-19 Restore Programme (R2) through providing trade finance and line of finance operations in member countries and putting their economies on a faster recovery path.

IsDB President Dr. Bandar Hajjar emphasised that “innovative solutions are necessary to shift the focus to the private sector and make global markets work for development.  This requires getting out of our comfort zone as we cannot rely on the public sector alone to improve our member countries’ economic outcomes. The COVID-19 crisis has forced us to have a second look at our resources and see how we can use them differently to be by the side of our member countries in this historic moment.” 

Since its establishment in 2008, ITFC has financed member countries by providing US$55 billion of trade financing to date. With the outbreak of COVID-19, ITFC adopted a two-pronged approach aimed at supporting member countries to counter the socio-economic challenges including a Rapid Response Initiative and a Recovery Response Programme. During 2020, ITFC provided member countries with US$605 million financing approvals to support procurement of essential goods.

The IsDB has signed similar agreements with two of its other entities, namely the Islamic Corporation for the Development of the Private Sector (ICD), its private sector funding arm, and the Islamic Corporation for the Insurance of Investment and Export Credits (ICIEC), its export credit agency.

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