the investor base (e.g., pension funds and insurance companies) should also be such that do not discourage issuance of sukuk as against other sources of financing.

Common topics in the primary market agenda for conventional and sukuk instruments are the design of hybrid offering regimes and simplified public offering procedures. A hybrid offer regime<sup>28</sup> is an increasingly used issuance framework that combines the elements of a public issuance and a private offering and seeks to maximize securities’ appeal for target investors, while minimizing the time and financing costs for issuers. Public offerings are also being simplified in several markets.<sup>29</sup> <mark>A tiered, differentiated approach for approval, registration, and disclosure requirements is being adopted that takes into account various factors such as the type of issuers, level of rating, and type of instruments (plain vanilla versus complex structures).</mark> The complex nature of sukuk instruments brings additional challenges in designing and implementing primary market policies and procedures. Simplifying disclosure requirements without compromising investor protection is more challenging to do for more complex structures such as sukuk. In some jurisdictions, even hybrid regimes dedicated to targeting qualified investors are available for only relatively simple corporate bond structures. Determining the level of disclosure and regime will depend on the structure and sophistication of the investor base.

# **_Investor Base_**

As in conventional fixed-income markets, a diversified investor base is essential for the development of domestic sukuk markets. A diversified investor base comprising segments of investors such as banks, mutual funds, insurance companies, pension funds, retail, and foreign investors provides the foundation for sustainable demand and deepening of any type of market.<sup>30</sup> A diversified group of investors reduces the risk of herding behavior and one-sided markets. The strategy of building a diversified investor base for sukuk involves two approaches: (1) attracting existing segments of investors to enhance allocations to sukuk as an asset class and (2) stimulating growth of specific segments such as mutual funds, pension funds, and insurance companies investing in the asset class.

The degree of complexity of sukuk products and their lack of liquidity require somewhat differentiated strategies to attract pools of investors such as retail and foreign investors. Promoting direct retail investor participation in sukuk needs to be done only under specific circumstances where policy makers are confident that the level of disclosure is adequate and that the retail investors are sufficiently qualified to understand the risks inherent to the sukuk structures. In most cases, a better solution is to promote retail investment via collective investment schemes, which in 28See World Bank and IOSCO (2011) for a detailed discussion of hybrid regimes and country experiences.

> 29The IOSCO EMC Task Force on Corporate Bond Markets recommended in its 2011 report (World Bank and IOSCO 2011) that emerging markets review their existing approval and registration processes and disclosure requirements and adopt a differentiated approach for improved efficiency of the primary bond markets.

> 30Another relevant segment of investors are those seeking “socially responsible investments” (SRIs). This has become an increasingly relevant investment strategy, but there is scarcity of SRI fixed-income instruments. Bennett and Iqbal (2013) suggest that SRIs could help bridge the gap between Islamic and conventional finance markets.

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