Determinants of Sukuk Issuance: An Empirical Analysis of Financial Market and Governance Indicators in Emerging Economies (2005–2021)

This article examines the determinants of Sukuk issuance in five leading emerging markets - Malaysia, Indonesia, Saudi Arabia, Turkey and the United Arab Emirates - from 2005 to 2021. Sukuk, an Islamic financial instrument, has gained significant traction as an ethical investment option, but empirical research on the key drivers remains limited. This study uses a Generalized Method of Moments (GMM) model and a Time-Series Cross-Section (TSCS) model to analyze the impact of financial market development, governance and macroeconomic conditions on Sukuk issuance volume. Key variables include stock market capitalization, availability of domestic credit, interest rates, government effectiveness, quality of regulation, foreign direct investment (FDI) inflows, and economic growth. The results show that sukuk issuance is positively influenced by market capitalization, domestic creditworthiness, quality of governance and foreign direct investment inflows, while high interest rates have a negative impact on issuance volume. The results are robust for both models, with the Sargan/Hansen and Hausman tests confirming the reliability of the model. This research provides valuable insights into how policymakers and financial institutions can promote an enabling environment for Sukuk markets and emphasizes the importance of financial market depth, strong governance and economic openness for sustainable Sukuk growth in emerging markets.