Sukūk development and income inequality

Wahyu Jatmiko, M. Shahid Ebrahim and Houcem Smaoui

Journal of International Financial Markets, Institutions and Money, 2023, vol. 88, issue C

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.

Keywords: Sukūk; Income inequality; Islamic finance; Financial development; Socio-economic development (search for similar items in EconPapers)
JEL-codes: D30 O15 O16 Z12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:88:y:2023:i:c:s1042443123001208

DOI: 10.1016/j.intfin.2023.101852

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