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Sukūk development and income inequality

Author

Listed:
  • Jatmiko, Wahyu
  • Ebrahim, M. Shahid
  • Smaoui, Houcem

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.

Suggested Citation

  • Jatmiko, Wahyu & Ebrahim, M. Shahid & Smaoui, Houcem, 2023. "Sukūk development and income inequality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:intfin:v:88:y:2023:i:c:s1042443123001208
    DOI: 10.1016/j.intfin.2023.101852
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    More about this item

    Keywords

    Sukūk; Income inequality; Islamic finance; Financial development; Socio-economic development;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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