SOVEREIGN DEBT ISSUANCE CHOICE: SUKUK VS CONVENTIONAL BONDS

Rhada Boujlil (hada_joy@hotmail.com), M. Kabir Hassan and Rihab Grassa
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Rhada Boujlil: Prince Sultan University, Saudi Arabia

Journal of Islamic Monetary Economics and Finance, 2020, vol. 6, issue 2, 275-294

Abstract: This paper investigates the factors that determine governments’ decisions to employ sovereign Sukuk over conventional bonds; the research is based on a sample of 143 Sukuk and 602 conventional sovereign bonds issued in 16 OIC countries between 2000 and 2015. The results depict that the nations that have developed financial markets, higher credit quality, and strong economic/financial prospects, issue more sovereign Sukuk than sovereign conventional bonds. Through the introduction of newly-developed debt tools, dealing with Sukuk bonds can diversify and develop current debt markets. However, less economically developed nations and countries are generally issuing insurance for classic sovereign bonds. Our findings suggest that governments’ choice of sovereign debt is influenced mainly by national, financial, and macroeconomic indicators, as well as specific events. Countries with developed financial markets, strong economic indicators, high credit quality, and sustainable financial position are more likely to issue sovereign Sukuk than sovereign bonds as this strategy allows them to develop and diversify their financial markets through the promotion of new debt products.

Keywords: Financial instruments; Islamic finance; Sukuk; Sovereign debt issuance; Emerging countries (search for similar items in EconPapers)
JEL-codes: C33 G21 G32 P51 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:idn:jimfjn:v:6:y:2020:i:2b:p:275-294

DOI: 10.21098/jimf.v6i2.1104

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