The effect of macroeconomic variables on Sukuk Issuance in Malaysia

The Islamic capital market, particularly sukuk has a prime role to the development of Islamic finance into a mainstream force for global financial industry. This study aims to investigate the effect of macroeconomic variables on Sukuk issuance in Malaysia from the period of first quarter of 2005 till the fourth quarter of 2019. The main objective of this study is to analyze the relationship of Sukuk issuance in Malaysia with selected macroeconomic variables; Bursa Malaysia composite index (BMCI), exchange rate (EXR), GDP, Inflation (INF) and interest rate (INT). This study employs time series analysis techniques such as Vector Error Correction Model (VECM), Johansen Co-Integration Analysis and Forecast Error Variance Decomposition (FEVD) Analysis to identify the relationship among variables in the short run and the long run. Based on our analysis, BMCI is the significant determinant factor of sukuk issuance in Malaysia in the long run while for the short run, the BMCI, EXR, and GDP, are significant. EXR is the most important contributor in short-term for sukuk issuance, followed by GDP and Bursa Malaysia (BMCI). Investors, regulators, and market participants may find this finding beneficial to recognise the crucial roles played by macroeconomic variables used in this study in determining the effect of macroeconomic variables on Sukuk issuance in Malaysia.