Investigating the Islamic Banking Performance During the COVID-19 Pandemic: A Systematic Literature Review Approach

The COVID-19 pandemic has significantly impacted the global system, influencing individuals, companies, and financial institutions, including Islamic banking. The World Health Organization has classified the outbreak as an international emergency due to its significant economic implications, necessitating prompt intervention to prevent a more extensive financial crisis. This study systematically examines the performance of Islamic banking during the COVID-19 pandemic, focussing on both pre- and post-closure stages. Despite the negative impact on the financial performance of Islamic banks before the restrictions, the closure phase revealed the sector’s resilience and adaptability. This study employs a Systematic Literature Review (SLR) methodology and adheres to the PRISMA (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) guidelines. This study utilizes peer-reviewed articles from the Web of Science (WoS) database, covering the years 2020–2023. A systematic screening process identified 26 pertinent studies according to specified keywords and inclusion criteria. This study aims to achieve three objectives: (i) to evaluate the impact of COVID-19 on Islamic banking performance, (ii) to analyse the responses of Islamic banks to the crisis, and (iii) to identify research gaps and propose directions for future research. The findings indicate that Islamic banks are progressing incrementally, notwithstanding intermittent disruptions resulting from government intervention and adaptation strategies. Additional investigation into the long-term effects of the pandemic on Islamic finance is crucial, especially concerning risk management, digital transformation, and regulatory frameworks.