Scintific Journal of "Islamic Finance Researches" (IFR)

The Impact of Macroeconomic Factors on the Sukuk Market Development with an Emphasis on the Role of Financial Risk in Selected Islamic Countries

Document Type : Science - Research (Islamic Financing Tools)

Authors

1 .A. Department of Economics, Faculty of Economic and Social Sciences, Bu-Ali Sina University, Hamedan, Iran

2 Associate Professor, Department of Economics, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran

3 M.A. Department of Economics, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran

Abstract

In recent years, the sukuk market has grown significantly. The sukuk market, as a financial instrument, plays a positive and important role in the country's economic growth by stimulating capital accumulation and promoting the efficient allocation of resources. Macroeconomic factors are one of the most important factors affecting on the sukuk market development. The purpose of this research is to investigate the impact of macroeconomic factors on the sukuk market development with an emphasis on the role of financial risk in 11 selected Islamic countries for the period of 2013-2021 and using the panel ordinary least squares method. The results show that in the studied countries, the impact of financial risk, interest rate fluctuations and institutional quality on the sukuk market development is negative and significant, while, the stock market development, inflation and exports have a positive and significant impact on the sukuk market development. Moreover, the results did not show a significant impact of the banking sector development on the sukuk market development. An increase in financial risk causes an increase in uncertainty and instability and a decrease in the confidence of investors, and as a result, investors prefer to make less risky investments. Therefore, financial risk has a negative and significant impact on the sukuk market development. The findings of this study are significant for policy makers, governments and regulators in formulating policies to improve the current situation of the sukuk market.

Keywords

Main Subjects

  1. شرکت مدیریت دارایی مرکزی بازار سرمایه (‌1395). مزایای صکوک. https://www.sukuk.ir/.
  2. Capital Market Central Asset Management Company (2016). Benefits of sukuk. https://www.sukuk.ir (In Persian)
  3. کشاورز، هادی؛ و رضایی، محمد (1400). اثر ریسک اقتصادی، مالی و سیاسی بر ریسک و بازده بورس اوراق بهادار تهران. اقتصاد پولی مالی، 28(22)، 152-127.
  4. Keshavarz, H., & Rezaei, M. (2022). The Effect of Economic, Financial and Political Risk on the Risk and Return of Tehran Stock Exchange. Monetary & Financial Economics, 28(22), 127-152. (In Persian)

DOI: 10.22067/mfe.2022.74053.1144

  1. Ahmad, W., & Radzi, R. M. (2012). Sustainability of sukuk and conventional bond during financial crisis: Malaysia’s Capital Market. Global Economy and Finance Journal, 4(2), 33–45.
  2. Al-Raeai, A. M., Zainol, Z., & Rahim, A. K. A. (2019). The Influence of Macroeconomics Factors and Political Risk on the Sukuk Market Development in Selected GCC Countries: A Panel Data Analysis. Jurnal Ekonomi Malaysia, 53(2), http://dx.doi.org/10.17576/JEM-2019-5302-15.
  3. Al-Sayed, O. (2013). Sukuk risk: analysis and management. European Journal of Applied Social Sciences Research, 1(3), 67–76.
  4. Aman, A. U., Naim, A. M., & Isa, M. Y. (2019). What Determines Sukuk Market Development? New Theoretical Insights. Global Review of Islamic Economics and Business, 7(1). 21-27.
  5. Aman, A., Naim, A. M., Isa, M. Y., & Ali, S. E. A. (2022). Factors affecting sukuk market development: empirical evidence from sukuk issuing economies. International Journal of Islamic and Middle Eastern Finance and Management, 15(5), 884-902.
  6. Ansari Samani, H., Mahmudi, Z., & Namdari, S. (2017). The Relationship between Risk and Foreign Direct Investment in Selected Developing Countries (Dynamic Panel Data Approach). The Journal of Economic Studies and Policies, 3(2), 71-104.
  7. Azmat, S., Skully, M., & Brown, K. (2014). Issuer’s choice of Islamic bond type. Pacific-Basin Finance Journal, 28, 122-135.
  8. Baita, A. J., Malami, H. U., & Al-Faryan, M. A. S. (2022). Fiscal policy and sukuk market development in OIC countries.
  9. Basyariyah, N., Kusuma, H., & Qizam, I. (2021). Determinants of sukuk market development: macroeconomic stability and institutional approach. Journal of Asian Finance, Economics and Business, 8(2), 201-211.
  10. Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: business model, efficiency and stability. Journal of Banking and Finance, 37, 433-447.
  11. Bhattacharyay, B. ‌ (2013). Determinants of bond market development in Asia. Journal of Asian Economics, 24, 124–137.
  12. Boukhatem, J., (2021a). Sukuk market and economic welfare nexus: a partial equilibrium approach. International Journal of Economics and Financial Issues, 11 (3), 142–145.
  13. Boukhatem, J. (2022). How does financial risk affect sukuk market development? Empirical evidence from ARDL approach. Heliyon, 8, e09453. https://doi.org/10.1016/j.heliyon.2022.e09453.
  14. Demirgüç-Kunt, A., & Maksimovic, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Review, 10(2), 341-369.
  15. Easterly, W., & Levine, R. (2003). Tropics, germs, and crops: How endowments influence economic development. Journal of Monetary Economics, 50(1), 3-39.
  16. Godlewski, C. J., Turk-Ariss, R., & Weil, L. (2011). Do Markets Perceive Sukuk and Conventional Bonds as Different Financial Instruments? Bank of Finland BOFIT Discussion Papers. 6-2011.
  17. Godlewski, C. J., Turk-Ariss, R., & Weill, L. (2013). Sukuk vs. Conventional bonds: a stock market perspective. Journal of Comparative Economics, 41 (3), 745–761.
  18. Hall, R. E., & Jones, C. I. (1999). Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114(1), 83-116.
  19. Hasan, M., & Dridi. J. (2010). The effect of global financial crisis on Islamic and conventional banks: a comparative study. IMF Working Paper, WP/10/201.
  20. Hasan, R., Ahmad, A. U. F., & Parveen, T. (2019). Sukuk risks: A structured review of theoretical research. Journal of Islamic Accounting and Business Research, 10(1), 35–49.
  21. Knack, S., & Keefer, P. (1995). Institutions and economic performance: Cross-country tests using alternative institutional measures. Economics and Politics, 7, 207-227.
  22. Kusuma, K., & Silva, A. (2014). Sukuk markets: A proposed approach for development. Policy Research Working Paper, 7113(December), 41.
  23. Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110 (3), 681-712.
  24. Mirza, A. R., & Sultana, N. (2020). Impact of economic factors to determine the sukuk market development: an empirical analysis. International Journal of Islamic Economics Governance, 1 (1), 65–83.
  25. Mu, Y., Phelps, P., & Stotsky, J. G. (2013). Bond markets in Africa. Review of Development Finance, 3(3), 121-135.
  26. Rahman, M. M., Tabash, M. I., Salamzadeh, A., Abduli, S., & Rahaman, M. S. (2022). Sampling techniques (probability) for quantitative social science researchers: a conceptual guideline with examples. Seeu Review, 17(1), 42-51.
  27. Rajan, R. G., & Zingales, L. (2003). The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5-50.
  28. Roslen, S. N.‌ M., Zaghlol, A. K., & Aziz, M. R. A. (2022). Using the ARDL approach to investigate the nexus between financial risk and sukuk market development. Journal of Entrepreneurship, Business and Economics, 10(2S1), 95–123.
  29. Said, A., & Grassa, R. (2013). The Determinants of Sukuk Market Development: Does Macroeconomic Factors Influence the Construction of Certain Structure of Sukuk? Journal of Applied Finance & Banking, 3(5), 251-267.
  30. Silva, T. C., Guerra, S. M., & Tabak, B. M. (2020). Fiscal risk and financial fragility. Emerging Markets Review. DOI: 10.1016/j.ememar.2020.100711.
  31. Smaoui, H., & Khawaja, M. (2016). The Determinants of Sukuk Market Development. Emerging Markets Finance and Trade.

DOI: 10.1080/1540496X.2016.1224175.

  1. Smaoui, H., & Nechi, S. (2017). Does Sukuk Market Development Spur Economic Growth? Research in International Business and Finance. http://dx.doi.org/10.1016/j.ribaf.2017.04.018.
  2. Taoual, S. (2016). Sukuk: A Potential for Stability and Development in the GCC. Economics Discussion Papers, No. 2016-7. Kingdom University, London.
  3. Yakubu, B. N., Salamzadeh, A., Bouzari, P., Ebrahimi, P., & Fekete-Farkas, M. (2022). Identifying the key factors of sustainable entrepreneurship in the Nigerian food industry: The role of media availability. Entrepreneurial Business and Economics Review, 10(2), 147-162.
Scintific Journal of
Volume 12, Issue 4 - Serial Number 26
August 2023
Pages 767-794
  • Receive Date: 02 September 2023
  • Revise Date: 25 November 2023
  • Accept Date: 06 December 2023