It was established to promulgate the international regulatory and supervisory standards for Islamic financial institutions worldwide aimed at achieving harmonisation of Islamic banking practices, fostering best practices and securing soundness and stability in Islamic finance. Another initiative to accelerate the integration of Islamic finance was the setting up of the International Islamic Financial Market or IIFM in 2002. The IIFM provides the environment to link all the financial centres around the world that participate in Islamic finance, thereby encouraging active participation by both Islamic and non-Islamic financial institutions  6  BIS Review 49/2005  in the secondary market for Islamic financial instruments. As the volume increases, it would strengthen the inter-linkages and integration amongst the Islamic financial centres. While having a Master Plan will provide a shared vision and a common goal, it needs to be recognised that the evolution of an Islamic financial system with all its component parts cannot be achieved within a short period of time. Having the medium and longer term goals outlined however, provides a basis to ensure the short term initiatives will be consistent and coherent with the long term objective. In other words, the construction of the building blocks must move in the right direction. As part of the process, each Islamic banking institution needs to formulate its own strategic plans and short-term action plans within this longer term perspective. With the foundations built and the plans in place, the future is by no means secure.
Today’s discussion aims to contribute towards a deeper awareness and understanding of the risks and emerging issues in mortgage financing. We hope that this, in turn will be useful to the boards and senior management of financial institutions in framing your own approaches to managing risks in this area. Tremendous growth prospects exist in the mortgage market in Malaysia. Over the last 5 years, mortgage financing experienced a strong and sustained average annual growth of more than 9%. Such loans now constitute a significant 27% of the total industry loan books. With emerging signs of an early and stronger recovery in the domestic economy, renewed optimism can be expected for more robust growth in the domestic mortgage market. The demand for housing will also receive additional support from continuous efforts by the government to promote home ownership and investments. For example, the new scheme to be launched this year for EPF contributors to fund the purchase of higher value or additional houses is expected to increase consumer purchasing power for homes in the coming years. The growing stream of new entrants in the labour market has also enhanced prospects for an expanded market among first time home buyers. At present, the overall mortgage financing portfolio in Malaysia remains sound, with gross non-performing loan on a declining trend since 2000. However, while mortgage financing has continued to be a profitable business for most banks, competition has intensified considerably, with lending yields falling dramatically over the last decade.