The COVID-19 had high economic and financial impacts on the Australian economy. The economic response to the pandemic by Australian Federal and State/Territory governments were swift, substantial and targeted.
Australian Islamic financial services industry is an emerging sector of the economy. It offers some limited Islamic financial services and products to address the impact of COVID-19.
Economic and Financial Impacts of COVID-19
In almost 3 decades, Australian economy was in a COVID-19 induced recession in March 2020 and June 2020 quarters.
In June 2020, the economy experienced a negative growth of 7 per cent, the previous biggest fall in economic growth was 2 per cent in 1974.
In March 2020, the negative growth was 0.3 per cent. As a comparison with the last recession in 1990-91, the Australian economy had a negative growth of 1.3 per cent in March 1991 and 0.1 per cent in June 1991. This shows the enormity of economic impact caused by COVID-19 in the recession of 2020.
In the quarter ended 30 June 2020, the downturns on various sectors of the Australian economy were high. Certain vastly impacted sectors with negative growth were Accommodation & Food (-39 per cent), Arts & Recreation (-23 per cent), Transport (-22 per cent), Other Business Services (-19 per cent), Wholesale & Retail Trade (-14 per cent), Manufacturing (-10 per cent), Construction (-9 per cent) and Healthcare (-8 per cent).
Growth in wages went back 2.5 per cent and household expenditure decreased by 12.1 per cent. Only good news story of this recession was that the rate of private savings increased by 20 per cent, a 50-year high in the Australian economy.
While this might have been Australia’s worst recession on record, it is not as bad as experienced in other developed countries in June 2020. While Australia had a downturn of 7 per cent in this quarter, Spain had a negative growth of 22 per cent, UK (-21 per cent), France (-19 per cent), Italy (-17 per cent) and Europe (-15 per cent).
Australia performed much better than other similar countries due to a better management of health/Coronavirus issues and targeted economic response.
Australian Economic Response to COVID-19 Pandemic
Australian Federal Government provided stimulus packages for workers, households and businesses. These included JobKeeper Scheme, JobSeeker Scheme, Cash Flow Boost for Employers, Instant Asset Write-off for Taxation, Supports for Apprentices/Trainees, Support for Regional Australia, Two Lump-sum Payments of $750, Early Release of Superannuation, Low Cost Credit Facility by Reserve Bank of Australia, Reduced Social Security Deeming Rates and so on.
Australian Islamic Financial Services Industry
There is a number of Islamic financial services entities providing various financial services and investment products to Australians. These include Islamic Home Loans, Islamic Superannuation, Income Fund, Property Trust, Units in Friendly Societies, Islamic Cash Investment, High Wealth Investments, Australian Shares and International Shares.
Availability of Islamic financial services to address the impact of COVID-19
The product offerings by Australian Islamic financial services providers mainly include home loans, superannuation and investment products. These are not specific to addressing the COVID-19 pandemic impacts.
Shariah compliant business loans probably based on lease to purchase (financial lease) or partnership would be useful for Muslim small businesses. Equipment financing based on similar concepts would also be useful for the Australian small business market.
Islamic philanthropic products such as Zakah and alms have limited applications in the Australian markets.
Concluding Remarks and Policy Recommendations
In about 3 decades, the COVID-19 pandemic induced the worst recession and economic conditions in Australia. Australian economic response to the pandemic was appropriate which was instrumental for the economy to rebound in the quarter ended 30 September 2020. Australian Islamic financial services industry is an emerging market and wealth creator.
I recommend the Australian Islamic financial services industry to expand its product offerings, including Shariah compliant business loans and equipment financing.
With good economic and health policies, Australia should be able to gradually cushion the blow of Covid-19 and Islamic finance should be able to make a positive contribution to the national recovery process from COVID-19