Factors Persuading the Investment Decision in Sukuk; the Mediating Role of Financial Literacy: A case from Pakistan

Abstract

Background: Islamic banking has gained considerable momentum since the last decade and still product development is underway to replace the conventional banking products. Sukuk is one of the innovative product designed for equity creation likewise its counterpart Conventional Bonds. Literature review and capital market statistics shows that there is little level of understanding amongst investors while taking the investment decision in Sukuk. This study explores the factors that persuade the investors to prefer investment in Sukuk over Conventional bonds.

Purpose: This study is being conducted to identify the persuasion factors impacting the investment decision of investors whether to invest in Sukuk taking into account the mediating role of Financial Literacy.

Design/methodology/approach: A questionnaire has been adapted in this study for investors enabling them to answer the research questions and subsequently on the basis of results the developed hypothesis(s) were tested. The survey was carried out on selected sample of investors from PSX, Financial Institutions & key management of commercial banks. Data analysis techniques used in this study is Structural Equation Modeling.

Findings: This study results indicate that majority of the Sukuk investors are financial institutions and corporates with very low participation of individual investor. Research finding’s empirical results supports the proposed hypothesis(s) and mediating role of Financial Literacy was evident from results.

Originality/value: This study is considered as the one of its kind conducted with reference to Pakistan. Literature review yet haven’t revealed any study that focus particularly on socio-economic factors which influence the tendency of the investors to invest or trade Sukuk with the mediating effect of Financial Literacy.