The role of Sukuk financing in economic growth and poverty reduction: Empirical evidence from selected ASEAN countries

Sukuk has received growing recognition as a Sharia-compliant financial instrument that promotes inclusive economic development and poverty alleviation. This study aims to investigate the dual impact of Sukuk financing on economic growth and poverty reduction in Indonesia, Malaysia, and Brunei Darussalam – three ASEAN countries with active Sukuk markets and shared development priorities. A quantitative research design is adopted using pooled (panel) data covering the period from 2019 to 2023. Data were collected from the Asian Development Bank, Brunei Darussalam Islamic Finance, and the Financial Services Authority. Empirical investigation employs simultaneous panel equations to explore the interdependence between variables. The study applies the instrumental least squares method and the two-stage least squares technique to address potential endogeneity. Economic growth is measured by gross domestic product growth rate, while the poverty headcount ratio quantifies poverty levels. Sukuk financing is represented by the total volume of Sukuk issued. Control variables include the Human Development Index, which reflects social progress, and the inflation rate, which captures macroeconomic stability.The findings indicate that a one percent increase in Sukuk financing results in a 0.09 percent rise in gross domestic product growth (p < 0.05), enhancing job creation and infrastructure development. Furthermore, a one percent increase in economic growth leads to a 5.97 percent decrease in poverty levels (p < 0.01), while inflation leads to a 0.64 percent rise in poverty (p < 0.05). These results confirm the effectiveness of Sukuk as a sustainable financing tool for long-term growth and poverty reduction in selected ASEAN countries. AcknowledgmentThe authors are thankful to the Deanship of Graduate Studies and Scientific Research at University of Bisha for supporting this work through the Fast-Track Research Support Program.