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Sovereign Debt Issuance Choice: Sukuk Vs Conventional Bonds

Author

Listed:
  • Rhada Boujlil

    (Prince Sultan University, Saudi Arabia)

  • M. Kabir Hassan

    (University of New Orleans, USA)

  • Rihab Grassa

    (Manouba University, Tunisia)

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.

Suggested Citation

  • Rhada Boujlil & M. Kabir Hassan & Rihab Grassa, 2020. "Sovereign Debt Issuance Choice: Sukuk Vs Conventional Bonds," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 6(2), pages 275-294, May.
    • Handle: RePEc:idn:jimfjn:v:6:y:2020:i:2b:p:275-294
    DOI: https://doi.org/10.21098/jimf.v6i2.1104
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    More about this item

    Keywords

    Financial instruments; Islamic finance; Sukuk; Sovereign debt issuance; Emerging countries;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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