Risk of Islamic securities (SUKUK) and a proposed reforms for development: the Indonesian experience

Abstract

ABSTRACT This study investigates Sukuk risk analysis and its contribution to Indonesian development by analysing historical market data. Two separate analyses were conducted: first, Sukuk risk valuation using historical simulation, and second, calculating the relationship between Sukuk issuance and economic development. Sukuk data spans from October 2014 to March 2023, starting with PBS007 issuance. Economic data for analysis covers quarterly periods from 2010 to 2022. The VaR analysis results indicate that the risk level of Sukuk is competitive and dependent on factors like maturity and future economic conditions. Investors should consider these factors when evaluating Sukuk offerings. Understanding Sukuk characteristics and risk levels is crucial for balanced investment. ARDL analysis demonstrate that Sukuk, as an alternative development financing method contributes positive significantly to the macroeconomic landscape of Indonesia. Furthermore, our results also reveal that by utilising Sukuk financing, the country reduces its dependence on external parties to fulfil its economic requirements.