Problem Statement
The popularity of Sukuk as the Islamic financing tool and Sukuk market actively increases in the Arab world. Sukuk can be discussed as investment certificates that are developed in compliance with Shari’a legal code, and that is usually issued by sovereign and corporate businesses (Godlewski, Turk-Ariss, and Weill 5). Sukuk, as developed financial tools, differ from conventional bonds (Hanifah, Noguchi, and Muda 108).
As a result, such states as Qatar refer to Sukuk in order to finance different infrastructure projects, including Hamad Medical City, established in 2003 (Oxford Business Group 70). The example of Qatar was followed by other Islamic countries, and it is important to explore how the reference to Sukuk as a suitable tool for financing projects can influence the economy and financial market.
Purpose of the Research
The purpose of the research is to examine how sukuk can affect the economic growth with the focus on the money supply N1 (deposit) and N2 (deposits and certificates) as well as to determine the effects of sukuk on the interest rate.
Research Objectives
The first objective related to the purpose of the research is to explore the relationship between sukuk and the monetary policy with the focus on differences between expansionary monetary policy and contractionary monetary policy.
It is important to understand which monetary policy can increase the advantages of sukuk most effectively. Thus, both contractionary and expansionary monetary policies are used to influence the changes in the state’s money supply (Askari, Iqbal, and Mirakhor 29). If the expansionary monetary policy focuses on increasing the supply of money, the contractionary monetary policy is used to decrease the volume of currency in order to influence the money supply.
The expansionary monetary policy leads to increasing the prices of bonds and decreasing the interest rate (Askari, Iqbal, and Mirakhor 29). The contractionary monetary policy is associated with increasing the number of bonds and decreasing their prices (Bacha and Mirakhor 112). In this context, it is important to explore what relationships are between different monetary policies and the use of sukuk.
The second objective is to explore how the issue of sukuk is related to fiscal policy.
Sukuk requires developed fiscal policies, and it is important to understand how changes in the conditions and regulations of different fiscal policies can influence sukuk. For instance, it is important to examine how sukuk depend on or influence the profit rate and changes in payments during the first six months or during the first year (Naim, Isa, and Hamid 78).
The third objective is to explore how sukuk is related to money supply N1 (deposit) and N2 (deposits and certificates) and the interest rate.
The completion of this objective is directly associated with achieving the purpose of the research because it is important to understand how sukuk can positively affect money supply in relation to N1 and N2 while influencing the interest rate (Jobst et al. 331). However, it is also important to study how sukuk can influence changes in the interest rate associated with a certain monetary policy.
The fourth objective is to examine how sukuk can be influential for N1, N2, and for the interest rate and how they can affect both the fiscal policy and the lending, including all the transactions that are based on the interest rate.
The discussion of these relationships should be associated with the discussion of the fact that sukuk are effective to generate returns while referring to actual transactions (Askari and Mirakhor 123; Jamilah Abdul Jalil and Rahman 207).
Parties
The parties involved in the process of issuing sukuk and important to be taken into consideration during the research are:
- Central Bank. Central Banks usually act as the leader in the market and as regulators of the principles of the followed fiscal policy. As a result, Central Banks directly influence the interest rate in relation to N1 and N2 (Bacha and Mirakhor 30). In spite of the associated challenges, Central Banks discuss sukuk as one of the most promising financial instruments that are used in the Islamic world currently (Hesse and Jobst 178).
- SPV (Special Purpose Vehicle). Conducting the research, it is important to determine how these legal owners of sukuk assets usually manage the financing in the state in a parallel line with the specific policies and Central Banks’ regulations as well as the governments’ direction for operating the projects (Bhatti 18; Hanifah, Noguchi, and Muda 108).
- The Market. The other important party in the market, including banks and investors, because these actors may transfer for using Islamic financing to lower associated risks and get the higher returns (Godlewski, Turk-Ariss, and Weill 4). From this point, to understand the role of sukuk for affecting the economic progress, it is necessary to discuss the rules according to which the sukuk market develops. This approach is important to set links between the financial tools, progress in the market, and changes in policies, and economic growth rates.
Works Cited
Askari, Hossein, Zamir Iqbal, and Abbas Mirakhor. Introduction to Islamic Economics: Theory and Application. New York: John Wiley & Sons, 2015. Print.
Bacha, Obiyathulla Ismath, and Abbas Mirakhor. Islamic Capital Markets: A Comparative Approach. New York: John Wiley & Sons, 2013. Print.
Bhatti, Ishaq. “Sukuk and the Bonding of Islamic Finance”. Monash Business Review 3.1 (2007): 17-19. Print.
Godlewski, Christophe, Rima Turk-Ariss, and Laurent Weill. “Do Markets Perceive Sukuk and Conventional Bonds as Different Financing Instruments?” BOFIT Discussion Papers 7.6 (2011): 3-40. Print.
Hanefah, Mustafa Mohd, Akihiro Noguchi, and Muhamad Muda. “Sukuk: Global Issues and Challenge”. Journal of Legal, Ethical and Regulatory Issues 16.1 (2013): 107-114. Print.
Hesse, Heiko, and Andreas Jobst. “Trends and Challenges in Islamic Finance”. World Economics 9.2 (2008): 175-193. Print.
Jamilah Abdul Jalil, Mariam, and Zuriah Abdul Rahman. “Sukuk Investment”. Qualitative Research in Financial Markets 4.3 (2012): 206-227. Print.
Jobst, Andreas, Peter Kunzel, Paul Mills, and Amadou Sy. “Islamic Bond Issuance: What Sovereign Debt Managers Need to Know”. International Journal of Islamic and Middle Eastern Finance and Management 1.4 (2008): 330-350. Print.
Naim, Asmadi Mohamed, Mohamad Yazid Isa, and Mohd Liki Hamid. “The Effects of New AAOIFI Standards on Sukuk in Choosing the Most Authentic Islamic Principles”. Journal of Islamic Accounting and Business Research 4.1 (2013): 77-93. Print.
Oxford Business Group. The Report: Qatar 2008. New York: Oxford Business Group, 2008. Print.