What Determines Sukuk Market Development? New Theoretical Insights

Abstract

In recent past, the Asian economies faced various financial crises, 1997 & 2008, because of underdeveloped or small capital markets. Most of the countries continued to heavily depend on the mere banking system for sovereign and corporate financing needs which made the region repeatedly vulnerable to the crises state. Therefore, the last decade has witnessed the remarkable growth in the alternative arrangement in the form sukuk and bond markets. The academic literature on the topic mainly focuses on bond market ignoring largely the determinants of sukuk market. Using content analysis approach, this conceptual study proposes the theoretical relationships of sukuk with some new possible determining factors along with some other factors which have not received enough attention in the literature. The study focuses on the dynamics of foreign capital inflows, macroeconomic and financial variables with respect to sukuk market development.

Factors affecting sukuk market development: empirical evidence from sukuk issuing economies

“…However, the relevant empirical literature on the topic is very limited. Some of the notable empirical works on sukuk have been done by Adam and Thomas (2004), Wilson (2008), Jaffer (2011), Godlewski et al (2013), Van Wijnbergen and Zaheer (2013), Azmat et al (2014), Smaoui et al (2017) and Aman et al (2019aAman et al ( , 2019b. The focus of these prior studies is on firm specific attributes of sukuk, like the capital structure of the firm, pricing of the sukuk and suitable underlying assets for sukuk.…”

“…In addition, Asian economies are in the phase of developing infrastructural connections within as well as across the economies; therefore, they need huge long term finances. These financial needs can be met through mobilizing local as well as regional capital resources with the help of having established sukuk and bonds markets (Aman et al, 2019a(Aman et al, , 2019bMusa et al, 2020). Well-developed sukuk and bond markets will simultaneously make Asia more resilient to the economic crises, attract the foreign capital inflows and turn the regional savings of Asia into fruitful investments (Bhattacharyay, 2010).…”

How Sukuk and Conventional Bond Affect Economic Growth? Evidence From Indonesia

“…The same results were also found in a study conducted by Al-Raeai et al (2018) who studied in the country -the gulf states that sukuk can increase or reduce economic growth through exchange rate and inflation. The study conducted by Alkhawaja (2019), Muharam et al (2019), andAman et al (2019) found that sukuk can influence economic growth through investment and trade openness.…”

How does financial risk affect sukuk market development? Empirical evidence from ARDL approach

“…Using content analysis approach, Aman et al. (2019) theoretically investigated the determining factors likely to contribute to SMD.…”