THE 10
thISLAMIC BANKING, ACCOUNTING, AND FINANCE INTERNATIONAL CONFERENCE 2022
(iBAF 2022)
Will Millennials Invest in Retail Sukuk? The Case of Malaysia and Indonesia Sulistya Rusgianto
Faculty of Economics and Business, Universitas Airlangga (UNAIR), Surabaya, East Java 60286 Indonesia Tel: +6281803181312 E-mail: [email protected]
Nursilah Ahmad
Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia
Tel: +606 798 6312 E-mail: [email protected]
Nanda Lismatiara Zubaid
Faculty of Economics and Business, Universitas Airlangga (UNAIR), Surabaya, East Java 60286 Indonesia Tel: +6281237816297 E-mail: [email protected]
Abstract
Sukuk issuances play a critical role in promoting economic growth. At present, there are moves towards introducing sukuk at the retail level online to make it accessible to the public. This is a way for the government to raise financing domestically. The present study investigates the knowledge and preferences of millennials towards retail sukuk offered in Malaysia and Indonesia. For that purpose, survey questionnaires are distributed in early 2022 to 135 respondents to examine their perceptions and awareness of sukuk investment using purposive samplings. Identifying factors influencing millennials investing in retail sukuk will contribute to the development of Islamic financial products and services in Malaysia and Indonesia. The findings suggest that values and technology-fit tasks are important variables in sukuk investment among the respondents. Millennial investors have an important role in developing sukuk investment products and services. To the policymakers, the findings will provide an early profile of investors millennials who are more inclined to use technological advances in investing.
It is important to understand millennials' values, behavior, and preferences to appropriately assess both opportunities and risks in investing.
Keywords: Retail sukuk; millennials; investment; Islamic bond; COVID-19
1. Introduction
The recent COVID-19 pandemic highlights sukuk's potential to be used as monetary and fiscal policy tools in economic recovery. While the stimulus packages injected by the government are necessary and will potentially widen the fiscal deficit, it is a temporary solution that is needed to prevent an economy from spiraling down.
Sovereign sukuk issuance can be an alternative solution to finance the fiscal deficit because it has become an Islamic financial instrument that is globally accepted (IIFM Sukuk Report, 2019; Global Islamic Report, 2020) and an effective source of financing to drive the economy (Baita & Daud, 2019). There is an increasing probability that most sovereigns may issue sukuk to meet their fiscal budgetary requirements during the coronavirus pandemic (IIFM Sukuk Report, 2020). Sukuk refers to securities, notes, papers, or certificates, with features of liquidity and tradability. Sukuk financing activities are mostly for the infrastructure and utilities, financial services sectors, property, and real estate, oil and gas, and energy sector (Ahmad et al, 2012).
Nowadays, the issuance of retail sukuk is not only for commercial objectives but also integrated with social objectives. For examples, Cash Waqf Linked Sukuk (CWLS) in Indonesia and Sukuk Prihatin in Malaysia. The issuance of CWLS is intended to facilitate temporary and permanent cash waqf to be placed in safe and productive investment instruments as well as to support the development of the social investment. The first series of CWLS was issued on November 26, 2020, and managed to raise IDR 14.9 billion (kemenkeu.go.id). Meanwhile, Sukuk Prihatin is issued by the Malaysia Government to support the national economic recovery plan. The first series
of Sukuk Prihatin was issued on August 2020 and managed to raise RM 666 million (pmo.gov.my). These two types of social sukuk can also be used as an alternative to financing economic recovery after the COVID-19 pandemic.
The most potential sukuk investor in the current digital era is millennials. The millennials or Generation Y is a new group of generation and has been increasing in numbers, usually people who were born in 1981-1996 (Pew Research Center, 2019). In Indonesia, the millennial population is contributing around 63.5 million people (Badan Pusat Statistik, 2020). Meanwhile, the millennial population in Malaysia stands at 26 percent of the total population, or approximately 8.47 million people (Worldometers, 2020). The millennials are the dominant population in this decade with the most productive age and also consist of middle to the high-income class community.
With recent development as well as technological improvement, buying sukuk through the online method is possible. Besides, there are 31 official distributors for digital retail sukuk. So, it should be easier for the prospective investor to buy it. Moreover, data from the Ministry of Finance of Republic Indonesia show that millennials are leading in the investment of sukuk sold online since 2018 which marks the digital sukuk era in Indonesia. The participation of millennial investors has increased to 45% and 51% in 2018 and 2019, respectively, compared to only 13% offline sales in 2016. Based on the explanation above, the millennials are a large potential market segment in the issuance of retail sukuk who's their behavior patterns need to be known. Therefore, studying their behavior is important to increase their participation in economic development, particularly post-pandemic economic recovery, through the issuance of digital sukuk. In particular, this study aims to investigate the perceptions of millennials that can form attitudes and intentions to participate in the digital sukuk issuance whether to invest for profit-oriented or to donate (social/non-profit oriented). The output of this research is expected to provide a quality reference for relevant stakeholders in making policies.
Florenthal (2020) studied what drove the millennials' motivation to have intention to donate funds for charity on social media sites. The results indicate that both information seeking and entertainment, coupled with the subjective norm, directly affect millennials’ intention to donate money to Nonprofit organizations (NPOs) via social media sites. Leon (2018) evaluates Millennials’ intention to use service mobile apps and assesses gender as a moderator. Even so, there is limited or little research that studies the behavior of the millennial generation toward the digital sukuk, especially their intention to buy sukuk for profit or non-profit (fulfill social responsibilities) oriented. Hence, this study will proceed to fill in this gap and will be the first to research this particular topic.
In previous studies, millennials' behavior has been discussed a few times. Azizah (2020) studied the factor affecting the investment behavior of the Indonesian younger generation. Lestari (2020) studied the effect of Islamic finance literacy and Islamic lifestyle investment in decision-making. Florenthal (2019) studied the involvement of young consumers namely Generation Y and Z with social media sites brands by synthesizing two motivation theories which are uses and gratification (U&G) and the technology acceptance model (TAM). In the same year, Florenthal (2019) studied the awareness of Millennials of corporate social responsibility (CSR) and their attitude to sustainable and responsible investment (SRI). The millennials are leading in the investment of sukuk sold online since 2018 which marks the digital sukuk era in Indonesia (Ministry of Finance, Indonesia).
The participation of millennial investors has increased to 45% and 51% in 2018 and 2019, respectively, as compared to only 13% offline sales in 2016 as indicated in Figure 1.
Figure 1: Investor Participations Notes: 2016-sold offline; 2018 & 2019 sold online 0
10 20 30 40 50 60 70 80 90 100
Baby Boomers Gen X Millenial/Gen Y Gen Z
2016 2018 2019
This paper is organized as follows. After the introduction, section two presents a literature review followed by the research method in section three. Section four discusses the findings while the last section concludes the discussion.
2. Literature Review
Indonesia and Malaysia dominate the issuance of sovereign sukuk. Malaysia and Indonesia are the key sources of sukuk supply in 2019, constituting 45.12% and 10.46% of the global sovereign sukuk, respectively (IIFM Sukuk Report, 2020). One form of the sovereign sukuk is retail sukuk. Retail sukuk is intended to facilitate greater retail participation in the Islamic capital markets and economic development as well as to meet the demand for retail investors to access more Islamic investment products. The Indonesia Government introduced Sukuk Ritel (Retail Sukuk) in 2009 and Sukuk Tabungan (Savings Sukuk) in 2016, which have been issued in 13 series and seven series, respectively. As for Malaysia, sukuk retail is relatively new, it was first introduced in 2015 and then liberalized regulatory framework in 2018 (sc.com.my). In terms of innovation, Indonesia was awarded The Best Islamic Capital Market at the 2020 Global Islamic Finance Awards (GIFA), one of which was due to innovations in the sukuk issuance (kemenkeu.go.id).
Several studies discovered that economic growth has a strong effect on the development of the sukuk market (Ahmad et. al, 2012, Istiqomah, 2012, Said and Grassa, 2013, Smaoui and Nechi, 2017). On the other hand, the development of the sukuk market also has a significant impact on economic growth. In a different context, Goaied and Sassi (2010) examine the connection between Islamic finance and economic development in a sample of the Middle East and North Africa (MENA) countries. The authors utilize an imbalanced panel data set and estimated a dynamic panel model using a generalized method of moments (GMM) estimation. Their results show no statistically significant correlation between Islamic finance and economic development in the economies they studied. However, the primary study's shortcoming is that the nations studied have various economic and financial development levels. The dispersion between these two indicators may not be constant among MENA countries.
As a result, the study findings may be skewed. Researchers indicate that macroeconomic factors influence the development of the sukuk market (Said & Grassa, 2013; Istiqomah, 2012; Smaoui and Nechi, 2017). However, some macroeconomic indicators such as inflation are not significantly influenced by this type of Islamic instrument.
In addition, high currency volatility creates uncertainty about the real value of sukuk instruments, impeding the development of the sukuk market. These results correspond to Arafat Mansoor's (2019), Smaoui, and Khawaja's (2016) findings that the exchange rate has a negative relationship with the development of the sukuk market. The United States dollar (USD) currency risk occurs when sukuk payments are made in a foreign currency with unpredictable cash flows. Other studies are reporting a positive relationship between exchange rates and the sukuk market (Suriani et al., 2018, Sucinigtias, 2019). To summarise, different studies report different findings on the relationship between macroeconomic indicators and sukuk market development. Therefore, the present study contributes to the literature on the sukuk-growth nexus.
3. Data and Methodology
Data collection for this study is based on a survey questionnaire based on purposive sampling. The data used in this study are collected based on purposive sampling and were collected from late 2021 until early 2022. The survey instrument was developed based on past literature as shown in Table 1. There are 11 themes covered to explore the purchasing behavior of millennials on sukuk purchases online. The variables are adapted to be in line with the research objectives. There are based on a 5-point Likert scale.
The total number of data collected is 135 respondents where 77 are from Indonesia and 56 are from Malaysia.
The profile of the respondents is available in the Appendix. In Malaysia, respondents are mostly female, in their early 20s, furthering studies and 12 percent of them have subscribed to sukuk digital. For Indonesia, the 77 respondents are approximately equal for male and female, around 48 percent have transacted in sukuk digital, are in their mid-20s, pursuing their first degree, and working in the private sector.
Table 1. Variables in the Survey Questionnaire
No Variables References Theme
1 Ease of Access Zaborek and Mazur (2019) Easy access to invest in sukuk
2 Values Monavvarifard et al. (2019)* Sustainable-oriented economy/community
3 Technology/Digital Transaction Leong et al. (2018)* Electronic transaction/online sales 4 Perceived usefulness Kucukusta et al. (2015)* Useful for community and social impact 5 Self-Enhancement Marbach et al. (2019) Important for self-actualization
6 Attitude Abd Rahman et al. (2015)* Sukuk vs conventional products
7 Religiosity Abd Rahman et al. (2015)* Shariah-compliant
8 Intention to Invest/Donate Lee et al. (2021) * Donation of return investment 9 Intention to Invest/Re-Donate in a higher amount Sura et al. (2017)* Will donate in higher amount in future
10 Positive Word of Mouth Ryu and Park (2020) * Will promote sukuk
11 Recommendation Fu and Wang (2020)* Recommend sukuk to Others
Note: *Adapted by researchers.
Table 2 lists the descriptive statistics for the Survey. For Malaysia, the highest mean value is for the variable Technolgy-fit task while the lowest one is Positive Word-of-Mouth. In the case of Indonesia, the highest variable is Values while the lowest average mean value is Accessibility, Religiosity, Positive Word-of-Mouth, and Recommended.
Table 2. Descriptive Analysis Accessi
-bility
Values Tech- nology
Usefull -ness
Self- Enhance
-ment
Attitude Religiosity Intention to Donate
Donate Higher Amount
Positive Word-of- Mouth
Recom - mende
d
Mean 3.06 3.54 3.54 3.42 3.45 3.49 3.05 3.21 3.53 2.89 3.29 Malaysia
Median 3.00 4.00 3.83 3.38 3.43 3.50 3.00 3.08 3.60 3.00 3.00 Malaysia
Mean 3.21 3.49 3.48 3.36 2.97 3.32 3.08 3.01 3.01 2.69 2.92 Indonesia
Median 3.00 3.75 3.67 3.25 3.00 3.33 3.00 3.00 3.00 3.00 3.00 Indonesia
Std. Dev. 0.65 0.59 0.57 0.59 0.52 0.55 0.56 0.57 0.56 0.78 0.66 Malaysia
Std. Dev. 0.57 0.58 0.59 0.55 0.52 0.65 0.56 0.66 0.59 0.88 0.87 Indonesia Source: Survey
4. Results and Analysis
We run the descriptive analysis for the data separately for Indonesia and Malaysia. Table 2 shows the results of the findings. Based on the average values of the nine variables measured, the responses that are highest for Malaysia are Values and Intention to donate a bigger amount in the future. Meanwhile, Indonesian respondents rated Values and Technology as the highest. For variables that show approximately similar responses in both countries, Values, Technology, and Religiosity. The lowest response for respondents from Malaysia is the category of ‘Accessibility and ‘Positive-Word-of-Mouth. For Indonesia, the Accessibility category and ‘Positive Word-of-Mouth’ variables are the lowest average mean values.
Figure 2. Intention to Invest in Sukuk Digital Among Millennials 0.00
0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
Accessibility Values
Technology Usefullness
Self-Enhancement Attitude
Religiosity Intention to Donate
Donate Higher Am ount
Positive Word-of-Mouth Recommended
Malaysia Indonesia
Based on the findings, millennials are a large potential market segment in the issuance of retail sukuk.
Therefore, studying their behavior pattern is important to increase their participation in economic development, particularly post-pandemic economic recovery, through the issuance of digital sukuk. investigate the perceptions of millennials that can form attitudes and intention to participate in the digital sukuk issuance whether to invest for profit-oriented or to donate (social/non-profit oriented). Values attached to Shariah-compliant products and technology-fit tasks are the important factors in sukuk investment, while market awareness and easy access to investment opportunities are criteria that need to be improved in the future.
At present, the Gulf Cooperation. Council (GCC) countries are moving away from the brick-and-mortar Islamic finance industry to a more digitized one. This trend reflects the market's general direction. The Millennials' and Gen-Zs financial literacy knowledge and willingness to invest in Shariah-compliant financial products can unlock opportunities for them. One of the problems millennials face and a core issue is unemployment. The recent rising inflation due to the coronavirus pandemic is adversely affecting housing costs and investments. Since Islamic finance instruments are based on the real economy, they could help provide jobs and mitigate inflation. Technology is the future of finance, and it is one of the important factors to help sustain the sukuk market industry.
According to the Glocalities Market Survey, Muslim millennials have more spending power and are more open to western-oriented values such as being successful and more hedonistic and brand-conscious. There are also dualities in their values, identified as Conservative Muslims and Muslim Achievers. By understanding the differences between the two market segments, offering appropriate investment portfolios will help expand the sukuk market. The Survey also suggests that to capture the global Muslim market, we need to study Muslims in the west because they form a bridge between the western world and the Muslim consumer markets of the east.
5. Conclusion
The present study explores the behavioral intention of the Millenials on sukuk investment. Based on the findings, the Millenials are willing to invest more in the sukuk instrument in the future because they consider shariah-compliant products and technology-fit tasks as important determinants. Millennials are aware of financial literacy and are willing to invest and help the economy recover from the recent coronavirus pandemic. There are shaping the economy and could be the game-changer for markets and the Islamic finance industry. They are also the most educated generation in history in the United States. Of late there is a shift in their financial goals where the Millenials are saving more from their salaries compared to prior generations. A survey conducted by Morgan Stanley shows that the majority of Millenials cite ESG (Environmental, Social, and Governance) as important goals in investing. Earnings, in the long run, are driven by technology. Millennials and Gen Z need to be financially savvy to succeed post-pandemic. Therefore, policymakers need to understand millennials' values, behavior, and preferences to appropriately assess both opportunities and risks in investing.
Acknowledgment
The research is funded by the Faculty of Economics and Business, University of Airlangga, Indonesia.
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Appendix
Appendix A: Profile of Malaysia’s Respondents
Items Frequency Percentage (%)
Millennials Generation
Yes 58 100
No 0 0
Have you ever transacted on digital sukuk?
Yes 7 12.1
No 51 87.9
Gender
Male 20 34.5
Female 38 65.5
Total 58 100
Age (years)
20 5 8.6
21 36 62.1
22 10 17.2
23 3 5.2
26 1 1.7
29 1 1.7
32 1 1.7
34 1 1.7
Total 58 100
Religion
Muslim 58 100
Non-Muslim 0 0
Education
Elementary School 0 0
Junior High School 0 0
Senior High School 1 1.7
Undergraduate 5 8.6
Post-Graduate/Doctoral 52 89.7
Total 58 100
Occupation
Student or College 55 94.8
Housewife/Unemployed 0 0
Civil Government Official 0 0
Private Employee 0 0
Self-Employed 1 1.7
Lecturer 1 1.7
Others 1 1.7
58 100
Monthly Income
No income 50 86.2
< RM 1,000 4 6.9
RM 1,001 - RM 2,000 2 3.4
RM 2,001 - RM 4,000 1 1.7
RM 4,001 - RM 4,999 0 0
> RM 5,000 1 1.7
58 100
Note: Only 56 data are usable for the analysis.
Appendix B: Profile of Indonesia’s Respondents
Items Frequency Percentage (%)
Millennials Generation
Yes 77 100
No 0 0
Have you ever transacted on digital sukuk?
Yes 29 37.7
No 48 62.3
Gender
Male 41 53.2
Female 36 46.8
Total 77 100
Age (years)
18-20 1 1.3
20-23 30 39
24-25 27 35.1
26-30 16 20.8
31-40 3 3.9
Total 77 100
Religion
Muslim 77 100
Non-Muslim 0 0
Education
Elementary School 0 0
Junior High School 0 0
Senior High School 11 15.6
Undergraduate 61 79.2
Post-Graduate/Doctoral 4 5.2
Total 77 100
Occupation
Student or College 30 39
Housewife/Unemployed 4 5.2
Civil Government Officials 2 2.6
Private Employees 26 33.8
Self-Employed 6 7.8
Others 9 11.7
77 100
Monthly Income
< Rp 5.000.000 55 71.4
5.000.001 - 9.000.000 18 23.4
9.000.001 - 13.000.000 3 3.9
13.000.001 - 17.000.000 1 1.3
> Rp 17.000.000 0 0
77 100
Note: RP1,000,000 = USD67.10 as of August 23, 2022.
