Comparative Studies between Islamic and Conventional Bonds: A Critical Review of Literature

Abstract

This aim of this study was to investigate the comparison between Islamic bonds (Sukuk) and conventional bonds and identify the research gaps existing with regards to the objective. The findings of the study revealed that: Islamic financial system, unlike the conventional financial system is based and guided by Shariah Law and Islamic teachings and principles. In Kenyan economy, there is a material population, of about 11% who are Muslim, and this has enhanced the appetite for Islamic financial products. While investor’s reactions to the announcement were seen to be neutral when conventional bonds are announced, in a few cases, they were slightly negative when Sukuk was announced. However, earlier research done in Indonesia shows that averagely the Yield to Maturity in Sukuk was significantly higher than in conventional bonds. In terms of the relationship between bonds returns, risk and performance, there was seen to be a clear relationship between the facets and performance of the conventional and Sukuk bond as compared to the volatility which is persistently lower in Sukuk. Sukuk reacts less to conditional volatility to market shocks than conventional bonds. The studies reviewed adopted event study design, quantitative research design, descriptive research design and systematic literature review.

Keywords: Comparative Studies, Islamic Bonds, Conventional Bonds