2. No Way Out for Sukuk Illiquidity? Proposing a Primary Dealer System for the Sukuk Market

Sukuk as an instrument in Islamic finance is growing rapidly. States and corporations issue sukuk to finance their general purposes and projects, as well as to compensate for their cash imbalances. However, its growth is challenged by liquidity issues in the sukuk market. Previous studies recommended the use of a primary dealer system (PDS) as a solution to overcome this problem in the conventional bond market. This study will use a qualitative case study of the sukuk market in Indonesia, a country with the largest Muslim population in the world and that is positioned as one of the big five in the Islamic Finance Country Index. Despite the growing interest of its government to issue sukuk as a source of sovereign funding, the market share in the country is only about 10 % of the total Indonesian government debt. This study aims to assess the viability of using PDS for the sukuk market and provide tactical recommendations to answer the sukuk illiquidity problem.