Sukuk, banking attributes and Islamic financial development

Purpose A well-developed sukuk market and sound banking attributes are crucial for Islamic financial development. Thus, the paper analyzed the effects of sukuk and banking attributes on Islamic financial development. Design/methodology/approach The data were collected for a sample of 14 countries between 2013 and 2022. Due to heteroskedasticity and serial correlation, the study employed a heteroskedastic panel corrected standard error model and conducted a robustness test using the Driscoll–Kraay estimation technique. Findings The findings establish that sukuk is a key enabler of Islamic financial development, whereas the capital adequacy ratio and non-performing loans hinder Islamic financial development. However, there is no statistically significant evidence of the effect of profitability on Islamic financial development. Research limitations/implications This research utilized a sample of 14 countries over ten years (2013–2022) due to the unavailability of data for other IFSB member countries. Practical implications The regulatory agencies should strengthen regulations to attract more investments in sukuk. As well, the Islamic bank management should diligently monitor the capitalization and risk management practices of Islamic banks to ensure a sound financial industry. Social implications The research uncovered that both sukuk and Islamic financial development are instrumental in promoting societal welfare, facilitating financial inclusion and provisioning of infrastructure. Originality/value The paper contributes to the empirical literature on the Islamic financial development within the context of the Islamic capital market (sukuk) and banks' financial characteristics. In addition, this is one of the few studies to test the “Co-evolution Model” in the context of Islamic finance. Peer review The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2024-0998