The determinants of Sukuk market development in selected Gulf Cooperation Council (GCC) countries

Sukuk is one of the Shariah-compliant financing sources offered to corporations and government. Although markets have witnessed the presence and rapid growth of sukuk
certificates, the Gulf Cooperation Council (GCC) share of global sukuk issuances has decreased recently. Hence, this study aims at identifying the determinants of sukuk market development in the selected GCC countries through examining the relationship of sukuk issuance with selected key political, financial and macroeconomic factors. The analysis was based on panel data analysis using Generalized Least Squares (GLS) and Fully Modified Ordinary Least Square (FMOLS) estimations, over the period of 2001 to 2016, to achieve these objectives. The sample includes Saudi Arabia, United Arab
Emirate, Bahrain, Qatar and Kuwait. The panel results indicate that a combination of macroeconomic, financial and political factors exerts a significant effect on GCC's sukuk markets. Generally, this study suggests that focusing on these determinants could contribute to the development of the GCC's sukuk market. Consequently, this study presents evidence that savings rate, exchange rate and banking system size are
significant determinants of sukuk market development in GCC countries. In addition, this study shows that GDP per capita, oil price, and trade openness are associated with larger sukuk markets. The political risk was also evidenced to have a significant influence on the sukuk market. As a result, the findings of this study provide implications for investors, regulators, and market participants in terms of identifying
the significant factors that are associated with the sukuk market development in the GCC countries. In addition, policy makers might employ the findings related to sukuk market development to recognise the important roles played by macroeconomic,
financial factors and political risk in enhancing the sukuk market in GCC countries.