The Potential Role of Sukuk in Promoting Economic Growth: Evidence from Malaysia And Bahrein

Abstract

Due to fixed interest and fixed income, bonds are considered excluded in the Islamic financial system. The sukuk were then designed as an alternative to these bonds, meeting the needs of all investors seeking instruments that comply with Islamic law (Shari’ah). Sukuk are considered to be the cornerstone of the Islamic financial industry, playing an important role in mobilizing funding and interaction resources for various actors and investment projects. In addition, the sukuk market as the most popular and sophisticated financial market continues to grow, now constituting a very important source of funds and capital for many governments and companies. The recent development and research on Islamic bonds have shown the importance of this instrument as an alternative to conventional bonds. The objective of this paper is to empirically test the impact of sukuk on the economic growth of Malaysia and Bahrain between 2001-2018. The data were obtained using Bloomberg and World Bank Database. Our results show a positive impact of sukuk on economic growth.