The Effects Of Sukuk (Islamic Bonds) In The Economy | Fahrian | Proceedings of AICS Social Sciences 1 SM

Proceedings of The 6th Annuual International Conference Syiah Kuala University (AIC Unsyiah) in conjunction with The 12th
International Conference on Mathematics, Statistics and Its Application (ICMSA) 2016
October 4-6, 2016, Banda Aceh, Indonesia

The Effects Of Sukuk (Islamic Bonds) In The Economy
Derry Fahrian1, Chenny Seftarita2
1*

Development Economics Department, Economcs and Business Faculty, Syiah Kuala University,
Darussalam, Banda Aceh 23111, Indonesia;
2Development Economics Department, Economcs and Business Faculty, Syiah Kuala University,
Darussalam, Banda Aceh 23111, Indonesia;
*Corresponding Author: derryfahrian@outlook.com;
Abstract
This study aimed to analyze the influence of sukuk towards Gross Domestic Product (GDP)
in the short term and the long term. The data used in this research is sukuk and Gross
Domestic Product (GDP) quarterly data from 2009 until 2015 in the form of time series,
processed and analyzed by the method of estimation of Autoregressive Distributed Lag
(ARDL). The results of this study indicate that factors influencing the Gross Domestic
Product (GDP) in the short term and the long term is the Gross Domestic Product (GDP)
and the Sukuk. In the short term Gross Domestic Product (GDP) influencing the Gross

Domestic Product (GDP) itself positively and significantly, while Sukuk influencing the Gross
Domestic Product (GDP) negatively. In the long term both of Sukuk and Gross Domestic
Product (GDP) influence the Gross Domestic Product (GDP) positively and significantly. The
study conclude that the increase in funding sources could increase the Gross Domestic
Product (GDP) in order to increase economic growth. Thus it is critical to increase the
sources of financing to stimulate economic growth in Indonesia.
Key words: Sukuk, GDP, ARDL.

Introduction
Sharia finance is growing significantly from time to time, the development is not only in areas dominated
by moslem population, it has now recovered the world scale. One of sharia financial instrument which
is currently growing rapidly is sharia bond known as sukuk. Sukuk is an innovative solution for those
who need financing source and investment. According to IFIS data quoted by the economist during the
decade 2002-2010, sukuk issuance grew at an average 35% per year. Moreover, based on the results
of the study that Thomson Reuters examined, world total sukuk issuance will reach $ 250 billion by
2020. (Dian Handayani).
Global sharia financial which is developing rapidly represent a great opportunity for the government to
link global investors with domestic economic sector by providing financial instruments needed by
financial institutions. According to Diaw (2011), sukuk provide many advantages with regard to
government spending on infrastructure. Sukuk improves the relationship between markets and financial

institutions due to sukuk must be based on tangible assets, and sukuk will strengthen the relationship
between the real sector and the financial sector. Similarly with sukuk holders, the sukuk holders prefer
to have a predictable and stable cash flow for long-term periods of time.
Sukuk was first pubished in Indonesia in 2002 that issued by PT. Indosat worth 175 billion rupiah, the
success of PT.Indosat in issued sukuk lead other companies to be sukuk issuance. Until the end of 2015,
total of corporation sukuk outstanding reached 8.444,4 billion rupiah. The development of global sukuk
and corporate sukuk is growing rapidly in Indonesia has been attracted the government, so that in 2009
the government has been began issued sukuk for global sharia financial institutions called Sukuk Negara
Indonesia (SNI). The issuance of global sukuk got a good response from investors. The issuance of
global sukuk SNI 25 series issued in 2015, 41% investors are from Middle East country, 21% are from
US, 12% are from Asia, and 10% are from Indonesia. Indonesia government not only focus on the
global sukuk, the government also issued Government Bonds (Sovereign Sukuk) which is known as
Sukuk. Sovereign sukuk grows rapidly as well as corporate sukuk. In the early, the value of outstanding
sovereign sukuk is only worth 10.256 billion rupiah and in the last quarter of 2015 it has reached
201.017 billion rupiah. This record indicates the investors are interested to invest over sharia obligation
in Indonesia that increase constantly from time to time. In 2016, the contributions of outstanding sukuk
is 15% of total government financial source. This amount is relatively small compared with government

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Proceedings of The 6th Annuual International Conference Syiah Kuala University (AIC Unsyiah) in conjunction with The 12th
International Conference on Mathematics, Statistics and Its Application (ICMSA) 2016
October 4-6, 2016, Banda Aceh, Indonesia

bond, but the progress showed by sukuk that constantly increasing each period makes sukuk has the
potential to increase its contribution in government financing in the future.
The increase of sources of financing, especially infrastructure financing are able to accelerate economic
development and economic growth of a region. As Calderon (2011) stated that economic growth is
positively and significantly correlated with the stock and infrastructure quality in an area. To increase
sources of financing, especially infrastructure financing, sukuk is an alternative. This is because sukuk
required the underlying assets in the form of tangible assets. So when the investors invest on sukuk,
they has strengthened not only the real sector but also the financial sector in the economy. The real
sector which is growing well will encourage the growth of Gross Domestic Product (GDP) of a country.
Literature Review
Islamic capital markets have witnessed the issuance of shari’a compliant financial instrument known as
sukuk. Sukuk basically same like bonds, sukuk have a maturity date and holders. However, sukuk are
asset-based rather than asset-backed securities, with the underlying asset being necessarily shari’acompliant in both nature and use. The eligibility of sukuk rests on identifying an existing or a welldefined asset, service, or project. In May 2003, the Accounting and Auditing Organization for Islamic
Financial Institutions (AAOFII) officially defined sukuk as certificates of equal value representing

undivided shares in ownership of tangible assets, usufructs, and it identified at least fourteen possible
sukuk structures. The AAOIFI distinguishes sukuk from stocks, bonds, and from the conventional
process of securization as well, emphasizing that sukuk are not debt certificate with a financial claim to
cash flow.
Although sukuk were first issued in the 1980s, nearly all growth has come within the past decade.
According to Moody’s (2007,2008), the global outstanding volume of sukuk exceeded $90 billion in
2007. Data from the Islamic Finance Information Services (IFIS) indicate that corporate sukuk quickly
gained a dominant market share on the sukuk market relative to sovereign sukuk. Indonesia, sukuk
were first issued by PT.Indosat in October 2002. The bonds have suffered double oversubrider, so that
PT.Indosat increase the amout of sukuk in the amount of Rp175 billion. Sukuk continuous to grow from
year to year until the end of 2015, outstanding corporate sukuk reached Rp9 billion. As the development
sukuk is growing constantly, the government finally issued sukuk in 2009 and in the last quarter of 2015
the amount of outstanding sukuk reached Rp201.017 billion. Sukuk which is growing countinously from
time to time make sukuk has the potential to become an alternative source of financing in the future.
Bonds is related to the financial market, based on research conducted by Lucas (1998) and Favara
(2003) estimated the positive role of financial markets in economic growth. This result indicates that
the development of financial markets in one of the factor encouraging the economic. Hering and
Chtusripitak (2000), Braun and Briones (2005) and Fink, Haiss, Kirchmer, and Moser (2006) examined
the relationship between bond market and economic growth. The result shows that there is a positive
relationship between the bond market and economic growth. Pataraa, Yoonbai, Chong (2013) examined

the effect of bond markets on economic growth. The results conclude that (i) capital market
development is positively significant assosicated with economic growth, (ii) the contribution of the bank
loan portofolio reduced in line with the development of bond market, (iii) government bonds positively
correlated with economic growth. Based on the studies that had carried out, the study conclude that
bond market is needed to encourage the economic growth of an area.
Research Method
To examine the effect of Sukuk on Gross Domestic Product (GDP), this research estimated the variables
with ARDL (Auto Regressive Distributed Lag) model. ARDL model contains the dynamic effects of specific
models by including lag value of variable for transform data into the model (Laurenceson and Chai,
2003). ARDL model generally expressed in the following equation (Bekhet and Matar, 2013) :

This study aimed to investigate the effect of Sukuk on Gross Domestic Product (GDP) in Indonesia. The
general equation of ARDL model must be transform becomes :
𝑘

𝑘

𝑖=1

𝑖=0

𝐺𝐷𝑃 = 𝛽0 + ∑ 𝛽1 𝐺𝐷𝑃𝑡−𝑖 + ∑ 𝛽2 𝑆𝐵𝑆𝑁𝑡−𝑖 + 𝜃1 𝐺𝐷𝑃𝑡−1 + 𝜃2 𝑆𝐵𝑆𝑁𝑡−1

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Proceedings of The 6th Annuual International Conference Syiah Kuala University (AIC Unsyiah) in conjunction with The 12th
International Conference on Mathematics, Statistics and Its Application (ICMSA) 2016
October 4-6, 2016, Banda Aceh, Indonesia

The data used in this study is quarterly data from 2009 to 2015 that collected from website of Bank
Indonesia and The Asia Regional Integration Center.
Results and Discussion
To determining the best equation that will be used on ARDL model, Unit Root-Test is necessary to find
out whether the variables are stationer at level I(0) or at first difference I(I). Software used in this
stationary test is Eviews 9.
Table 1. Stationary Test
No

Variabel

1

GDP

2

SBSN

PP
At level
-4,4947
(0,0070)
-2,7679
(0,2200)

1st
-

2nd
-

16,6339
(0,0000)

-

Based on stationary test on table 1, it can be seen that the ordo of each variable are different. The
Gross Domestic Product (GDP) variable is stationer at level I(0), while the Sukuk variable is stationer
at first difference I(I).
To determine the best model will be used on ARDL estimation model, determining the optimal lag of the
equation is need to be done. According to Azuma (2014) the amount of lag selected is the equation with
the smallest value of Akaike Information Criterion (AIC) or Auto Correlation Function (ACF).

Table 2. Optimal Lag Test
Lag
1
2
3

AIC
58,34815
58,14527*
58,33389

SC
58,59009
58,48656*
58,77566

Based on the result on table 2, it can be seen that the amount of optimal lag for the Gross
Domestic Product (GDP) and Sukuk variables is the second lag. Based on optimal lag test, ARDL equation
that will be used in this study is ARDL with two lag.
Table 3. Auto Regressive Distributed Lag (ARDL) Estimation
Variable
C
D(GDP(-1))
D(GDP(-2))
D(SBSN(-1))

D(SBSN(-2))
GDP(-1)
SBSN(-1)

Coefficient
5.69E+13
0.369131
0.160662
-0.084568
-0.048804
0.972690
0.103081

Std. Error
1.83E+13
0.201591
0.069824
0.036347
0.033523
0.010619

0.040342

t-Statistic
3.113814
1.831088
2.300969
-2.326666
-1.455831
91.60014
2.555177

Prob.
0.0060
0.0837
0.0336
0.0319
0.1627
0.0000
0.0199

The estimation results are shown in table 3 describes that the Gross Domestic Product (GDP) variable
is affected by Gross Domestic Product (GDP) in the first lag and second lag, while Sukuk affects Gross
Domestic Product (GDP) in the first lag. This is based on the value of the estimated coefficients,
0.369131 for the first lag of Gross Domestic Product (GDP) in the short term with 90% confidence level,
0.160662 for the second lag of Gross Domestic Product (GDP) in the short term with 95% confidence
level and -0.084568 for the first lag of Sukuk in the short term with 95% confidence level. This results
suggest that changes of Gross Domestic Product (GDP) in this period will affect the Gross Domestic
Product (GDP) itself in the next quarter and the next two quarters. While changes of Sukuk will affect
Gross Domestic Product (GDP) in the next quarter. In the long term, both of the variables affect Gross
Domestic Product (GDP) positively and significantly with estimated coefficients 0.972690 for Gross
Domestic Product (GDP) and 0.103081 for SBSN. To find out whether Gross Domestic Product (GDP)

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Proceedings of The 6th Annuual International Conference Syiah Kuala University (AIC Unsyiah) in conjunction with The 12th
International Conference on Mathematics, Statistics and Its Application (ICMSA) 2016
October 4-6, 2016, Banda Aceh, Indonesia

and Sukuk variable will be in equilibrium state in the long term, it is necessary to estimate short term
equation with ECT (Error Correction Term). ECT is used to determine the level of speed adjustment in
the short-term to long-term equilibrium. When ECT estimated coefficient is negative and significant,
indicates that the variable will be in equilibrium state in the long-term. The value of estimated coefficient
of ECT showed the speed of adjustment level in correcting the imbalance of the variables to be back to
the balance point (equilibrium) (Bekhet and Matar in Fahmi, 2015).
Based on the optimal lag, short-term estimation results are obtained as follows:
Table 4. Short-Term Estimation
GDP =
t-ratio
p-value

3,15E+15
3,125160
0,0056

−1,521149 𝐺𝐷𝑃𝑡−𝑖
-0,113870
0,9105

+12,96395𝑆𝐵𝑆𝑁𝑡−𝑖
2,282576
0,0341

+3,114273𝜀𝑡−𝑖
1,579111
0,1308

Based on the results of short-term estimation on table 4, obtained that the value of the ECT variable is
positive and not significant with estimated coefficient 3.114273 and p-value (0.1308 > 0.05). This
results indicate that the variable Gross Domestic Product (GDP) will not adjusted short-term balance
towards long-term. To find out whether Sukuk variable joinly with Gross Domestic product (GDP)
variable correlated with Gross Domestic Product (GDP) in the short-term, this study use wald-test.

Table 5. Short-Term Wald Test
Variabel
GDP

Wald-Test
10,89446
(0,0278)**

Based on the Wald-test contained on table 5, it can be seen that p-value shown significant result (0.0278
< 0.05), which means that the variable Sukuk has significant effect on Gross Domestic Product (GDP)
in the Short-Term. Based on ARDL estimation result on table 3, in the short-term changes of Gross
Domestic Product (GDP) variable in a period will affect Gross Domestic Product (GDP) itself on the next
quarter and the next two quarter with estimate coefficient 0.369131 and 0.160662 with 90% and 95%
confidence level. While change of Sukuk in a period will affect Gross Domestic Product (GDP) on the
next quarter negatively and significant with estimate coefficient -0.084568 and 95% confidence level.
This result indicates that increase Sukuk in a quarter will reduce Gross Domestic Product (GDP) in the
next quarter. This mechanism allegedly associated with the decision of investors to invest in sukuk,
when investors shift their investment to sukuk, the investment that increase Gross Domestic Product
(GDP) in the short-time would be switched on sukuk that will reduce Gross Domestic Product (GDP) in
the short-time. This is due to mainly sukuk, especially mudharaba based sukuk are based on project
that take time to become productive.
Table 6. Long-Term Estimation
GDP =
t-ratio
p-value

-6,72E+12
−0,216548
0,8304

+ 1,020009 𝐺𝐷𝑃𝑡−𝑖
−0,113870
0,0000

−0,064733𝑆𝐵𝑆𝑁𝑡−𝑖
−0,877820
0,3887

Table 7. Long-Term Wald-Test
Variable
GDP

Wald-Test
134920,1
(0,000)*

Based on Wald-test in the long-term that are contained on table 7 show that the p-value is significant
(0.0000 < 0.05), it means there is a long-term relationship between the Ssukuk variable and Gross
Domestic Product (GDP) variable. Based on table 3, estimate coefficient for sukuk and Gross Domestic
Product (GDP) is 0.103082 and 0.97269 with 95% confidence level. Based on estimate coefficient
obtained in ARDL estimation shows that increasing 1 trillion rupiah in sukuk will increase Gross Domestic
Product (GDP) 103 billion rupiah. Based on the result of these estimation, this study conclude that the

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Proceedings of The 6th Annuual International Conference Syiah Kuala University (AIC Unsyiah) in conjunction with The 12th
International Conference on Mathematics, Statistics and Its Application (ICMSA) 2016
October 4-6, 2016, Banda Aceh, Indonesia

contribution of sukuk to Gross Domestic Product (GDP) is relative small. This result allegedly caused by
the lack of sukuk issuance by government and corporation.
Conclusions
The results of thi study indicate that; (i) Gross Domestic Product (GDP) is affected by Gross Domestic
Product (GDP) itself and sukuk in the short-term and long-term; (ii) in the short-term, changes of Gross
Domestic Product (GDP) in a period will affect Gross Domestic Product (GDP) itself in the next quarter
and the next two quarter. The changes of 1 trillion Gross Domestic Product (GDP) in a period will
increase Gross Domestic Product (GDP) in the next quarter amounted to 369.131 million rupiah and the
next two quarter amounted to 160.662 million rupiah; (iii) in the short-term, changes of SBSN in a
period will affect Gross Domestic Product (GDP) in the next quarter. The changes of 1 trillion rupiah
sukuk will decrease Gross Domestic Product (GDP) in the next quarter amounted to 84.568 million
rupiah; (iv) in the long-term, Gross Domestic Product (GDP) is affected by the Gross Domestic Product
(GDP) and sukuk. The increase of 1 trillion rupiah sukuk will increase Gross Domestic Product (GDP)
amounted to 103.081 million rupiah.
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