I have seen several articles, but one recently from The Asset magazine, that attempt to contrast the protests across the Middle East and North Africa with the resurgence of the sukuk market. I think this misses one very significant point about the sukuk market that makes the analysis somewhat flawed: there is not a "sukuk market", but instead there are many "sukuk markets".

The geographical spread of sukuk is not terribly great but it is growing by the day. However, the most imporant thing to remember is that despite the convergence to some degree in Shari'ah standards between the Gulf Cooperation Council (GCC) and Malaysia, the two markets are driven by different factors and are at very different stages of development.

Returning to the article, it begins by stating that "So far, the market is riding out the political storm in the Middle East and parts of North Africa. This is likely because, with the exception of Bahrain, the crisis is playing out in countries with virtually no Islamic finance activities - Syria, Yemen, Egypt and Libya". I would say that this statement on its own is misleading because of Bahrain as a hub for Islamic finance, particularly for the international financial institutions involved in the industry. Bahrain is also home to the standards setting bodies like AAOIFI and IIFM. So, noting Bahrain as an exception misses the significant impact of disruptions in that country would have to GCC sukuk markets. Finance, both conventional and Islamic, accounts for more than a quarter of Bahrain's GDP.

Then there is the hangover effects of the financial crisis which are being resolved, but which still account for a drag on the Islamic finance industry in the region. Dubai's debt crisis is well known, but other countries had problems like Kuwait and Bahrain, whose Islamic investment banks suffered greatly due to the crisis even before any hints of protests arose.

The reason the sukuk market has continued to do well is because of the resurgence mostly of Malaysian sukuk markets. Malaysia was initially hit harder by the financial crisis, but also recovered more quickly than the GCC. The Zawya quarterly sukuk bulletin is a good source of data on sukuk, and using data from 2010 and 2011, the GCC sukuk markets were not hurt by the protests in the first half of 2011, but neither did they lead the recovery--in fact, they were weaker in 2010 (GCC sukuk accounted for 13% of the $52.5 billion in sukuk issued), while in 2011 the GCC accounted for 29% of the $43.3 billion issued year to date.

In December 2010, I wrote a piece on my blog titled "What is wrong with the GCC sukuk market?". In that post, I compared the depth of the Malaysian sukuk market (using sukuk issuance as a percentage of GDP) to the GCC market and found a significant difference. If GCC sovereigns and corporates issued sukuk representing as large a share of GDP as in Malaysia, the total issuance should have been $184 billion ($6.9 billion were issued in 2010). That is a big gap that should wipe away any methodological mistakes I made in the estimates.

The reason the sukuk market globally has been resilient in the face of unrest in the Middle East has something to do with the geographical breakdown of Islamic finance in the region, but much more to do with the sukuk market 3,400 miles to its east in Malaysia. The Malaysian market has grown stronger on the back of a rising Ringgit and government support for the industry. It has even attracted issuers from the GCC who are now choosing to issue sukuk in Malaysia instead of their home markets. As I concluded my blog post in December 2010--something which remains true today--"until the GCC markets are "fixed" (or an alternative market like the Luxembourg Stock Exchange becomes the go-to location for sukuk issuers), there will continue to be a large gap [between the GCC and Malaysia for sukuk issuance]".

Blake Goud is Principal of Sharing Risk and the Correspondent (Americas) for The Islamic Globe, a weekly newspaper covering the Islamic finance industry.