Academic journal article Academy of Accounting and Financial Studies Journal

Sukuk as a Financial Asset: A Review

Academic journal article Academy of Accounting and Financial Studies Journal

Sukuk as a Financial Asset: A Review

Article excerpt

INTRODUCTION

The Islamic finance having more than 400 Islamic banks and financial organizations operating in 58 countries is flourishing in today's global capital market with a spectacular growth rate and stability over the last several decades (World Bank, 2016). On average, Islamic finance is growing at 10% to 15% a year and hence it is one of the fastest-growing segments of global finance (Afshar and Muhtaseb, 2014; Muhamed & Radzi, 2011; Chermi and Jerbi, 2013; Uppal & Mangla, 2014). With an industry asset value approximately USD 1.9 trillion in 2016; Islamic finance conducts the business competitively with the conventional counterparts around the globe (IFSB, June 2017). Because of a leaps and bonds growth in Islamic finance sector, it attracts a substantial academic attention and consequently academic contributes research papers on versatile issues in Islamic finance (World Bank, February 2017; Uddin et al., 2017; Beck et al., 2013; Johnes et al., 2014; Abedifar et al., 2013). Among the diverse types of Islamic finance instruments, one of the fastest growing instruments available for investors in Islamic Capital Market (ICM) is sukuk, which contributes approximately 14.3% of the global Islamic finance asset (Alam et al., 2013) and also comprises approximately 55% of Islamic banking outstanding debt papers (Zin et al., 2011a). Consequently, sukuk is becoming an important and widely accepted different class of Islamic finance product of international financial system (Bacha and Mirakhor, 2013).

Sukuk, a shari'ah compliant financial instrument is an innovation of Islamic finance used as an alternative fund raising financial instrument. It attempts to circumvent fixed interest that is prohibited in Islam, yet generates a return closer to conventional bond. According to Ahmed et al. (2015) sukuk has been considered as one of the fastest growing financial instruments in international financial landscape and also considered as the most successful sharia'ah compliant product among the Islamic financial institutions. Although sukuk market is still small compared to bond market, it has been growing quickly, at an average rate of 30% since the global financial crisis (Lackman, 2015). So, we notice that sukuk is still a green (new) and emerging area in Islamic Capital Market (ICM). In addition, given the range and international diversity of sukuk issuers, it is obvious that sukuk has become a globally accepted Islamic finance product that has high potentials to develop further. Since the launch of sukuk as a new class of financial asset, the market for sukuk has witnessed a remarkable growth in the past with a forecasted global demand of US $900b by 2017 (Ernst & Yong, 2017). We also find that, Malaysia is the global pioneer in the Islamic finance industry and continuously stays at the forefront of sukuk issuance with more than 57 percent of the global sukuk market as on 2015 (IIFM, 2016). Therefore, it is important to undertake a meta-analysis on the thematic areas of sukuk that require an intensive investigation and further research.

Given the above discussion, this paper provides a systematic review of the existing literature on the pertinent qualitative and quantitative studies on sukuk mainly to identify the unknown research issues on sukuk and evaluate them in the context of corporate finance. We find that sukuk is ideally introduced as a new class of financial asset in the global financial market since 2002. Despite the remarkable growth of global sukuk market, the prior research on sukuk is limited and mainly based on qualitative analysis. Hence we argue that sukuk scholarly review is, prima facie, not as in-depth and developed as that of the conventional financial instruments. In a nutshell, based on existing meta-analysis of sukuk, the synthesis summarizes a bundle of key thematic areas such as- 2.1: Sukuk characteristics mainly argued that sukuks are equity-like Islamic financing instruments or fund raising product like bond or even investment certificates having bond and stock like features representing undivided beneficial ownership of the underlying asset for a limited period; 2. …

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