Sukuk has attached interest especially Islamic investors since the return is based on fixed assets. Currently, the supply of sukuk has become popular in both Islamic and non-Islamic countries enabling Malaysia to take advantage, since the product has been offered in the Islamic market since the 1980s. The performance has raised a question of what is the effect of the development in sukuk market to the Malaysian Islamic capital market. Accordingly, this study identifies the role of Islamic bonds in generating the Islamic capital market growth by using the Autoregressive Distributed Lag (ARDL) approach. Based on the first quarter of 2001 to second quarter 2008, the estimated results indicate the existence of the long run relationship between the variables in the regression model.

This paper seeks to provide a framework for addressing regulatory issues which impact operations and institutional development of Islamic banks. Arguing against universal regulation or creating separate specialized regulations, the approach in this paper uses the regulatory dialectic principle to highlight the need to regulate Islamic banks and focuses on the area of regulations that need to be covered and regulated. The area of regulations can be classified into seven broad categories, i.e regulations on bank activities, bank entry, capital adequacy, deposit insurance, monitoring, government ownership and supervision. The area of regulations providing stability in a financial system context cannot develop without a conducive legal and regulatory environment. Finally, we will introduce the CAMEL rating to measure the soundness of Islamic banks.