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Sukuk: a potential for stability and development in the GCC

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  • Taoual, Safiyah

    (Kingston University London)

Abstract

This paper explores the significance of Islamic Sukuk instruments for stability in the GCC. As a result of the financial crisis of 2007-2008, interest in financial stability has increased. Islamic scholars suggest that Islamic financial institutions and products have the potential to contribute in achieving a more stable economic environment. This paper analyses Sukuk, an Islamic financial instrument with both bond and equity traits; and how it can contribute to achieving a more sound and resilient economic environment in the GCC. Findings suggest that Sukuk do have the potential to effectively contribute to the GCC’s economic stability; as long as they adhere to the pure Islamic financial principles and avoid trying to be comparable to conventional bonds. Currently, however there appears a heavy reliance on shorter term issuances, along with the majority of issuances in the USD, a heavy reliance on real estate as both a means of financing an underlying collateral in Islamic securitization; elements which could be destabilising especially during destress. The originality of this paper lies in its empirical contribution, as it, for the first, time sets out systematically the characteristics of Sukuk issuance in the GCC region with respect to Sukuk maturity, issuance currency and sectoral distribution. It also assesses the various Sukuk structures and the underlying risks involved; as well as the impact of collateral in Islamic securitization.

Suggested Citation

  • Taoual, Safiyah, 2016. "Sukuk: a potential for stability and development in the GCC," Economics Discussion Papers 2016-7, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2016_007
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    References listed on IDEAS

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    More about this item

    Keywords

    Islamic Finance; Sukuk; Financial stability; GCC; Development;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • L79 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Other
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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