Covid-19 Moratorium and Islamic Banking
With the nearing of the end period of financing moratorium on this coming September 2020, there has been a call to extent it until the end of this year. It is not clear what is the response from the financial institutions on this proposal. It would seem the extension will be given but not in the same generous blanket fashion of the first moratorium. There was a misunderstanding between the banks and customers when the moratorium was first announced by the Government which saw different banks applied different ways on how to handle the moratorium. After public pressure that insisted that banking institution should also share the suffering of their customer in this difficult time, it was then officially declared that the moratorium is automatic to all customers and without any extra charges. The banks including Islamic banks as a result suffer some loss from the view point of the accounting methodology of bank's income and financial statement. As logical consequence of this quandary, it is likely that the financial institutions will extent the moratorium by their terms and conditions.
The underlying problem from this suspicious perception on the operation of Islamic banks by the public and consumer group in particular is the expectation to see Islamic banks to behave in a manner that is perceived as just and fair. The content of the paper cutting below is probably old story but it reverberates the same and current discontentment. Indeed what is considered as just and fair is subjective, although some basic rules can be identified. One of the complaint was that the failure of the Islamic bank to understand the predicament faced by customer and hence providing necessary assistance to alleviate the problem. Both sides are at the extreme end of the spectrum whereby what that is needed by the customer is to stop the payment whereas the bank insisting on the payment by the customer for the reason that the latter has a legal obligation to do that, rain or shine. It would mean that what is just for a customer might not be so for the bank that has to protect the interest of the shareholders and depositors. In the case of abandoned housing projects below for example, the bank might not think just and fair to waive the payment since it has already paid some part of the money to housing developer who is actually the real culprit in this case.
Another criticism is that whether the Shariah scholars advising the bank are naturally have a conflict of interest by leaning towards the bank in a disagreement between the bank and customer simply because these scholars are paid by the bank. This is a valid question and steps have been taken to avoid this from happening through the issuance of Guidelines on the appointment of Shariah Advisors to the bank by Bank Negara Malaysia. This guidelines was updated, reviewed and consolidated into Shariah Governance Framework passed in 2011 and Shariah Governance Policy Document in 2019 which provide a comprehensive provisions on the duties, roles and responsibilities of the Shariah Advisor. I think the criticism below has some effect to ways how Shariah Advisor is appointed and their roles in a particular Islamic bank. Actually a lot has taken place since 2012 in term of just and fairness both to customers and financial institutions. One of the important aspect of understanding customer needs and predicament is through the Value Based Initiatives or VBI launched in 2018 by Bank Negara Malaysia. Although many saw that VBI is very much influenced and related to United Nation Program on Sustainable Growth, it has some uniqueness that is exclusive to Islamic banking especially the promotion of the maqasid in achieving a truly Islamic banking as a term.
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