The economic and political determinants of depth and strength in sukuk markets

Previous research has drawn five main conclusion about the sukuk market: developments in economic and financial instruments, coupled with technological innovations, as well as political, regulatory improvements and increased levels of stability have created a constant and increasing flow of capital to emerging markets; emerging debt markets are the highest beneficiaries of this phenomenon; this inflow shows significant variations in their destinations depending on several factors; Islamic finance has emerged as a new and integrated branch of financial markets during the same time, but, in parallel to the developments in conventional emerging markets, this also shows strong variations across countries, especially with regards to debt in terms of sukuk markets; and, finally, Islamic financial markets are reaching a certain stage of maturity after a long period of strong growth, in part owing to favourable global conditions and the innovations mentioned above. However, given that the economic sizes and market capitalizations of the conventional base for Islamic finance is relatively small, at this stage of maturity, Islamic finance will eventually need to reach out to market participants which do not have the emotional attachment of the conventional base. This study explores this particular issue and examines the potential reasons for variation between the development and market depth of sukuk markets. In addition, this chapter explores alternative channels that can be established to attract unconventional market participants.