Sukūk development and income inequality

Jatmiko, Wahyu, Ebrahim, M. Shahid and Smaoui, Houcem (2023) Sukūk development and income inequality. Journal of International Financial Markets, Institutions and Money, 88, [101852]. (doi:10.1016/j.intfin.2023.101852).

Record type: Article

Abstract

This paper investigates the link between sukūk development and income inequality by scrutinizing twenty-two countries’ data from 1995 to 2019. We employ the two-stage Fractional Regression Model to illustrate that sukūk issuance is associated with increased income disparity. This result is attributed to the sukūk design ignoring credit market frictions. This rationalizes the sukūk-inequality nexus in light of the ethical objectives of Islamic law. We argue that reinforcing property rights by mitigating the ill effects of excessive risk-taking (i.e., gharar) and endemic agency costs of debt (i.e., ribā) in our ethical framework can improve sukūk's role in socio-economic development.

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Accepted/In Press date: 30 September 2023

e-pub ahead of print date: 1 October 2023

Additional Information: Funding Information: The authors thank Habib Ahmed, Obiyathulla Bacha, Zaäfri Husodo, Vasileios Pappas, Francesco Vallascas, participants of the 2022 International Society for the Advancement of Financial Economics (ISAFE-2022 Vietnam) and Paris Financial Management Conference (PFMC-2022) for their valuable comments and feedback on the previous versions of this paper. We also appreciate the constructive suggestions of the Editor (Jonathan A. Batten) and two anonymous Referees.‬‬‬‬, Authors’ Statements. Author Contributions. All authors contributed to the study's conception and design. Jatmiko Wahyu initially performed material preparation, data collection, and analysis. He also wrote the first draft of the manuscript while the remaining authors restructured the same. All authors read and approved the final manuscript. Funding Sources. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Publisher Copyright: © 2023 The Authors

Keywords: Financial development, Income inequality, Islamic finance, Socio-economic development, Sukūk