The impact of Islamic financial development on renewable energy production in Islamic countries

Abstract

Purpose − This study aims to determine the impact of the development of Islamic finance on renewable energy production in Islamic countries. Two variables representing Islamic finance (Islamic financing and Sukuk) and five control variables (economic growth, foreign investment, CO2 emissions, trade openness, and consumer price index) are also studied.Methodology − Ninety-panel data from 10 Islamic countries over a period of 9 years (2013-2021) were analyzed using panel data analysis with the fixed effect model approach.Findings − The results show that Islamic countries with good development of Islamic banking and Sukuk tend to experience an increase in renewable energy production. Other empirical findings show that economic growth, CO2 emissions, and consumer price index are the next variables that affect renewable energy in Islamic countries.Implications − The results of this study have implications for the policies of Muslim countries to further encourage Islamic finance to be channeled into the renewable energy sector. The government should establish a clear regulatory framework for green Islamic investment and financing and if necessary, they are needed to provide incentives to the green investment sector.Originality − Previous studies that directly examine the effect of Islamic financial development on renewable energy are still limited. Most of the previous studies have examined the impact of Islamic financial development on environmental issues such as sustainable development, climate change, or environmental quality

Renewable Energy in Islamic Countries: A Research Map

“…Renewable energy is an important topic in Islamic countries, and there have been several studies on this topic. Siswantoro & Mahmud (2023) argue that the development of Islamic finance, including Islamic banking and Sukuk, can have a positive impact on renewable energy production in Islamic countries. Muhammad et al (2017) also suggest that the consumption of renewable energy has a positive and significant impact on economic growth in OIC (Organization of Islamic Cooperation) countries.…”

“…Therefore, a clear regulatory framework and incentives are needed to promote environmentally friendly Islamic investment and financing in the renewable energy sector (Siswantoro & Mahmud, 2023). This is because the development of renewable energy technology is a crucial element for sustainable development in Islamic countries (Sopian et al, 2011;Gabbasa & Sopian, 2013).…”

“…Topic 1 relates to Islamic finance and renewable energy. Research on this topic is still relatively limited, among the relevant studies are Siswantoro & Mahmud (2023), which analyzed the impact of Islamic finance development on renewable energy production in Islamic countries. The research findings indicate that Islamic countries with a well-developed Islamic banking and Sukuk system tend to experience an increase in renewable energy production.…”

“…In the research conducted by Siswantoro & Mahmud (2023), it was found that the development of Islamic finance, including Islamic banking and Sukuk, can have a positive impact on renewable energy production in Islamic countries. Muhammad et al (2017) also argue that the consumption of renewable energy has a positive and significant effect on economic growth in OIC countries.…”

Advancing Ethical and Sustainable Economy: Islamic Finance Solutions for Environmental, Social, & Economic Challenges in the Digital Age

“…Enhancing Renewable Energy Production through Islamic Financial Development Mahmud's (2023) research explores the relationship between Islamic financial development and renewable energy production. The study shows that strong Islamic banking and Sukuk systems correlate with increased renewable energy production.…”