Impact of COVID-19 on United Arab Emirates Economy, Micro,Small and Medium Enterprises“MSMEs” and a Way Forward to Islamic Finance

Abstract

The Economy of United Arab Emirates (UAE) was thriving with its upcoming preparations for Expo 2020, until there was a sudden pandemic strike of the noble COVID-19 taking a huge toll on the economy and its businesses. According to the International Monetary Fund (IMF) statistics, the UAE economy Gross Domestic Products (GDP) of 2020 is expected to slash by -3.5%. While major firms can handle pandemic impacts better, Micro Small and Medium Enterprises (MSMEs) do not have such tolerance to withhold such a huge slash. MSMEs contribute to 52 per cent of UAE’s non-oil GDP and are a great backbone to the economy. In such a situation, Islamic finance can prove to be of a great aid to MSMEs and ultimately the economy. The purpose of this research paper is to measure the impact of COVID-19 outbreak on the UAE economy and MSMEs of the country while providing Islamic finance resolutions that can help this issue. The research was conducted through distributing surveys to various MSMEs in the UAE and interviewing them regarding the impacts of COVID-19 on their business and measures taken by them. Additionally, the research attempts to find a relation between the number of COVID-19 cases and economic impact from January 2020 – September 2020 by using Purchase Manager’s Index (PMI) as an indicator. The results portray a negative impact between the amount of COVID-19 cases and the country’s PMI. However, these results may not be completely accurate as it is too early to produce confirmed relations. The findings of this paper also show that Islamic micro-finance solutions coupled with Islamic fintech mechanisms can help the country in preserving MSMEs consequently helping the economy in gradual recovery. However, results show that due to the various restrictions in Islamic finance, providing solutions to all MSMEs is not possible as many businesses may not be sharia compliant.