COVID-19 and Islamic leasing
Since Islamic leasing is a fundamental aspect of the airline industry and
almost all Shariah compliant aircraft transactions are structured using Ijarah, the drop in airline passengers as well as the cancellation of flights due to COVID-19 is a cause for concern for the global Islamic leasing sector. The aircraft leasing transactions have the owner of the plane transferring the right to use it for profit to another person for an agreed-on price ratio.
The allocation of responsibility and risk between the lessee and the lessor makes it Shariah compliant.
Royal Air Maroc in Morocco has suspended all flights into Italian airspace over the pandemic. Morocco reported its first death from COVID-19 as at the time of writing this report. Kuwait has also suspended all commercial passenger flights as of the 12th March 2020.
Dubai Islamic Bank has postponed issuing Islamic leasing products citing the current market conditions generally and the COVID-19 virus specifically as the reasons for the delay.
Bank Negara Malaysia is moving forward with a licensing framework focusing on digital banks which will grease the wheels of Islamic leasing in its wake with fintech at the center of this development. A recent Thompson
Reuters report pegged the number of Shariah compliant financial products,
inclusive of leasing, rising to a forecast US$3.8 trillion value by 2022.
The Central Bank of the UAE has established new guidelines to help the industry survive through the outbreak.These measures include procedures
like rescheduling Islamic leasing and loan contracts as well as deferrals on
the payments to trusts that are included with Ijarah or leasing products. These changes are designed to support the economy and keep a lid on liability risk.
The indices in the UAE hit record lows after the US restricted travel and the
World Health Organization labeled the outbreak as a pandemic. These indices are instrumental in pricing Islamic leasing ventures.
Shoeb M Sharieff is the president and CEO of Ijara Community Development Corp. He can be contacted at shoeb@ijaracdc.com.
