Green sukuk and FinTech as drivers of environmental finance efficiency in Islamic economies: Evidence from Malaysia, Indonesia, and the UAE (2010–2024)

Type of the article: Research ArticleAbstractFor sustainable development to be achieved, financial systems must be in place that can channel financial resources more efficiently into sectors that positively impact the environment. This study aims to examine whether the development of both green sukuk and financial technology increases environmental finance efficiency in Malaysia, Indonesia, and the UAE. A balanced panel dataset of 45 country-years from 2010 to 2024 is employed in this study. Fixed effects and dynamic system generalized method of moments estimators are used to estimate the model based on secondary data from various sources such as the World Bank, International Monetary Fund’s Financial Access Survey, United Nations Conference on Trade and Development, Environmental Performance Index, Climate Bonds Initiative, Refinitiv, and Bloomberg. The study finds that both green sukuk and financial technology have a positive and significant impact on environmental finance efficiency in Malaysia, Indonesia, and the UAE, and that financial technology enhances the efficiency effect of green sukuk in Malaysia and other Islamic economies in general. In Malaysia, the highest efficiency effect comes from the sukuk market depth, while in the UAE, it comes from financial technology development. In Indonesia, it comes from both financial deepening and financial technology development. The study suggests that financial technology and green sukuk are complementary in driving environmental finance efficiency in Islamic economies.