The research, co-authored by Jean Helwege, a professor of finance at the University of California, Riverside, examines two decades of activity in Malaysia’s corporate bond market after the country began developing a Shariah-compliant capital market in 1997. The researchers compared the evolution of Islamic bonds with that of conventional corporate bonds, asking whether the new securities would replace existing financial products or simply divide the same pool of investors.

Their findings point to a striking result. Islamic bonds grew rapidly without causing the conventional bond market to disappear or contract significantly. Instead, sukuk attracted individuals and institutions that otherwise would not have invested in interest-bearing debt. The result was a larger overall market, with companies gaining access to a broader range of potential financiers.

“The overall finding was that these bonds increased in popularity,” Helwege said. “People did like to buy them, but it didn’t make the conventional bonds go away. The result was that there’s more financing overall, and it does seem to have been helpful to the growth of the Malaysian economy.”

Although sukuk often deliver cash flows that closely resemble those of conventional bonds, their legal and financial structures are different. Conventional bonds generally represent loans in which an issuer promises to repay principal while making scheduled interest payments. Islamic bonds cannot be built around interest. Instead, they use arrangements such as asset-based financing, leasing, trade transactions or profit-sharing contracts, depending on the structure and the interpretation of Islamic financial authorities.

In economic terms, however, many sukuk are designed to provide investors with predictable returns and a strong expectation of receiving their principal back. This makes them highly comparable to conventional bonds from an investment perspective, even though the contractual foundations are different. The securities must also avoid financing activities considered impermissible under Islamic law, including gambling and certain alcohol-related businesses. Companies seeking to issue sukuk typically undergo a religious certification process, which adds costs but provides access to investors who observe these restrictions.

The Malaysian market offered an unusually clear setting for testing how a specialized financial product affects competition and investment. The country deliberately developed Islamic and conventional capital markets side by side, allowing corporations to choose between instruments with similar financial characteristics but different religious eligibility. Many companies issued both types of bonds, using conventional securities to reach traditional investors while offering sukuk to investors in Malaysia, the wealthy Gulf states and other regions who would not purchase interest-bearing debt.

The data show how quickly the Islamic market moved from a niche product to a major source of corporate financing. In the late 1990s, annual Islamic bond issuance was below US$2.5 billion, while conventional issuance ranged from approximately $5 billion to nearly $18 billion. By 2017, Islamic issuance had climbed above $20 billion. Conventional issuance remained comparatively stable, generally ranging from $7.2 billion to $10.8 billion per year. The contrasting trends suggest that sukuk did not merely redirect money that would otherwise have flowed into conventional bonds; it generated additional demand.

The study also examined the pricing differences between the two forms of debt. Because Islamic bonds require specialized legal documentation, asset arrangements and Shariah certification, they can be more expensive to issue. Companies must weigh those costs against the benefit of reaching investors who are otherwise excluded from conventional debt markets. The researchers found that pricing differences remained relatively small, indicating that the enlarged investor base could offset much of the additional complexity.

The authors describe the result as evidence against the assumption that a new financial product simply fragments an existing market. Instead, a security that is “nearly redundant” in terms of its financial payoff can still have a significant economic impact if it makes investment possible for people with different legal, ethical or religious requirements. The same principle could apply to other specialized products, including green bonds, socially responsible investments and securities designed for investors with strict environmental or governance preferences. In Malaysia, accommodating religious values did not weaken the bond market. It helped make the market bigger, giving businesses more ways to raise money and investors more opportunities to participate.

Subject of Research: People

Article Title: The impact of introducing a (nearly) redundant security: Evidence from Malaysian corporate bonds

Web References: https://doi.org/10.1016/j.jfineco.2026.104310

References: Helwege, J., Berndt, A., Liu, A., and Packer, F. “The impact of introducing a (nearly) redundant security: Evidence from Malaysian corporate bonds.” Journal of Financial Economics. DOI: 10.1016/j.jfineco.2026.104310

Image Credits: UC Riverside

Keywords: Islamic bonds, sukuk, Shariah-compliant finance, Malaysia, corporate bonds, financial markets, investment, business financing, capital markets, Journal of Financial Economics

Sukuk represent a unique investment opportunity that aligns with Islamic financial principles, emphasizing assets and ethical investments rather than conventional interest-bearing loans. This structure not only meets the requirements of religiously observant investors but also contributes to the broader financial market. The rise of sukuk in Jordan can be attributed to several factors, including the need for funding infrastructure projects and capital-intensive sectors that inherently require substantial financial resources. Understanding how sukuk profitability intertwines with capital expenditure is essential for policymakers and financial analysts alike.

Ghaith’s research stands out as it examines the interrelationship between sukuk, capital expenditure, and GDP. By analyzing data spanning from 2017 to a forecasted 2024, the study sheds light on how the performances of sukuk offerings hold the potential to fuel economic growth in Jordan. Furthermore, the significance of GDP as a moderating factor suggests that a robust national economy can amplify the positive effects initially expected from sukuk transactions. This perspective encourages a comprehensive understanding of how sukuk can serve not just as an investment avenue but as a genuine catalyst for economic development.

The research methodology employed by Ghaith integrates both qualitative and quantitative approaches, ensuring a holistic view of the aforementioned relationships. This combination allows the study to capture the nuances of how sukuk profitability fluctuates in response to economic dynamics specifically observed in Jordan. The longitudinal data utilized helps in establishing concrete correlations as well as potential causation that can inform future economic strategies.

In examining sukuk profitability, Ghaith delves into various factors such as demand trends, interest rates, and investor sentiment. Each of these elements can signify varying degrees of success or failure for sukuk offerings, which could consequently influence capital expenditure decisions made by businesses within the region. A thorough analysis is thus indispensable for ensuring that investors can make informed decisions that align with market realities.

Moreover, the capital expenditure aspect is equally crucial, as it determines the level of investment that businesses are willing to undertake in the wake of insights derived from sukuk profitability trends. Companies that understand these dynamics may be better equipped to allocate resources efficiently, thus driving growth within key sectors such as infrastructure, healthcare, and technology. This is particularly relevant for Jordan, where capital expenditure decisions are critical for fostering economic resilience amidst global uncertainties.

Another significant contribution of Ghaith’s work lies in the emphasis on the moderating role of GDP. As economic indicators fluctuate, understanding their interplay with sukuk profitability provides invaluable insights. For instance, during periods of economic downturn, the ability of sukuk to continue driving capital expenditure may be hindered, suggesting that broader economic health is essential for leveraging the benefits of such investments.

The conclusions drawn from this study could serve as a guiding framework for both private corporations and public policymakers in Jordan. By recognizing the interdependencies among sukuk profitability, capital expenditure, and GDP, stakeholders can devise informed strategies to optimize their financial outcomes. Policymakers might also consider creating an inviting regulatory environment to foster the growth of sukuk offerings while ensuring that they contribute positively to national capital projects.

Ghaith’s findings have broader implications that extend beyond Jordan’s borders. As sukuk gains traction on the international stage, understanding how local economies can effectively harness their benefits is crucial for the overall growth of the Islamic finance sector. This insight not only aids Jordan but also informs other countries looking to adopt similar financial frameworks.

The expected timeline of this research continues to unfold, with the ongoing developments in the financial landscape promising to add new layers to the discussion. As such, the evolving nature of sukuk and its interaction with national economies merits continuous examination. Future researchers could expand the scope of Ghaith’s work by exploring comparative analyses across different nations that utilize sukuk as part of their economic ecosystems.

As we anticipate the publication of Ghaith’s study in Discov Sustain, the discourse surrounding Islamic finance and its socioeconomic impacts will undoubtedly gain momentum. This serves as a reminder of the continuous need for academic inquiry into economic practices that align with moral and ethical considerations, emphasizing sustainability and communal benefit alongside profitability. The implications are clear: the pathway to economic resilience in Jordan, fueled by sukuk, could set a precedent for others to follow as they navigate the complexities of modern finance.

In conclusion, Ghaith’s research not only elevates discussions surrounding Islamic finance but also paves new avenues for understanding the economic ramifications of sukuk profitability in relation to capital investment. As the study unfolds in the coming years, it will likely become a cornerstone for future inquiries and developments in the realm of ethical finance, reflecting an increasingly conscious approach to global economic challenges.

Subject of Research: The impact of Islamic bank sukuk profitability on Jordanian capital expenditure under the moderating role of GDP from 2017 to 2024.

Article Title: Investigating the impact of Islamic bank sukuk profitability on Jordanian capital expenditure under the moderating role of GDP from 2017 to 2024.

Article References: Ghaith, M.A. Investigating the impact of Islamic bank sukuk profitability on Jordanian capital expenditure under the moderating role of GDP from 2017 to 2024. Discov Sustain (2025). https://doi.org/10.1007/s43621-025-02330-2

Image Credits: AI Generated

DOI: 10.1007/s43621-025-02330-2

Keywords: Sukuk, Islamic finance, capital expenditure, GDP, Jordan.