Raja Dayana Binti Raja Idris; Mansor H. Ibrahim (INCEIF, 2021)
Malaysia has long been at the forefront of Islamic finance, particularly in the sukuk market. Malaysia has consistently been one step ahead of the competition in terms of market share and sukuk structure innovation since the initial issue in 2002. Undoubtedly, sukuk is known as the viable alternative and complement the conventional financing. Nevertheless, recent studies showed that the present practise of Islamic finance does not encourage economic growth. Hence, this paper analyzes the effectiveness of sukuk and bond issuance based on the neoclassical finance-development nexus where the impact of financial deepening as a result of higher sukuk and bond issuance contribute to the transition in the level of income per capita is modelled using an error correction framework. The study centered towards understanding the relationship of sovereign issuances in the capital market to provide better insight for the government in understanding their role to develop the countries capital market which will lead to better development of the nation by providing avenue for liquidity and funds management for financial institutions and investors. Using annual data from the first sovereign sukuk issuance in 1983 to 2020, we document evidence for the positive relationship between sovereign sukuk and bond with the income per capita. This depicts that the increase amount of sukuk and bonds by the government has been productively support the economic development of Malaysia. The study also found that sovereign sukuk contribute more to economic development, in comparison to sovereign bond securities.
