Zeti Akhtar Aziz: Strengthening linkages in the Islamic financial markets Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the seminar on Derivatives in Islamic Finance, “Strengthening Linkages in the Islamic Financial Markets”, Kuala Lumpur, 24 June 2005. *  *  *  Distinguished Guests, Ladies and Gentlemen, "Islamic finance in Malaysia today has become increasingly more entrenched and integrated both on the domestic and international fronts. The successful integration has contributed to its rapid growth in assets and created a more robust and resilient Islamic financial system. The challenge now is to further strengthen the linkages in the respective components of the Islamic financial system, in particular, the Islamic financial markets. " It is my pleasure to welcome you to this seminar on Derivatives in Islamic Finance jointly organised by Bank Negara Malaysia and the Financial Market Association of Malaysia. During this recent two days, we have organized the Investors Conference, the seminar on the 10-year Masterplan on Islamic Finance and the dialogue among Shariah scholars which have gathered an extensive participation, from policy makers, investors, industry players and Shariah scholars. Today's event is another important initiative which brings together financial experts to deliberate on a vital aspect in the development of Islamic finance. Ladies and Gentlemen, The successful development of a robust and resilient Islamic financial system depends on the ability to integrate the various components of the Islamic financial system that includes the Islamic banking industry, takaful and the money and capital markets.
In today's marketplace, there are only a number of Islamic financial instruments that have been developed to cater for this need which for the most part constitutes straight private and government Islamic papers. In a bid to deepen and broaden the Islamic bond market, the government has been regularly issuing Islamic and conventional securities with different maturities, enabling the creation of a benchmark yield curve. This was further enhanced with the introduction of an Auction Calender in the year 2000. In the 2000, Government Investment Issues or GIIs were introduced, followed by Islamic negotiable notes, private debt securities, Treasury Bills and sukuk. Furthermore, following the amendment to the Government Investment Act in year 2005, the Government has started issuing shorter-term Islamic Treasury Bills and longer-term sukuk or Islamic bonds with a maturity of 10 years in order to further diversify the Islamic financial instruments available for investors. Under the Act, the Government is able to issue Islamic instruments under various Shariah principles and for different tenures; short and long term, to  BIS Review 49/2005  1  meet the varying needs of investors. Islamic private debt securities (PDS) too have been fast growing in importance and size, accounting for 50% of the total PDS market in 2004. Despite these developments, there has been an inadequate supply of short-term Islamic instruments thereby providing less flexibility to the institutions in managing their asset and liability profiles.