Zeti Akhtar Aziz: Islamic finance and global financial stability Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Seminar on Islamic Finance: During and After the Global Financial Crisis – "Islamic finance and global financial stability", Istanbul, 5 October 2009. *  *  *  "The unfolding events during this global financial crisis have brought to the forefront the issues concerning the stability of financial systems and the robustness and resilience of the international financial architecture. At the heart of the crisis is the breakdown of the functioning of the financial intermediation process and the loss of confidence in the financial system. As the world continues to struggle with the consequent global economic recession and the continued fragile financial system, it has intensified the search for solutions. Indeed, wide ranging reforms are now currently being discussed. The future financial landscape in the aftermath of this crisis is, therefore, likely to be significantly different from the present. In the search for the appropriate reforms, there is a general consensus that we need to return banking to its basic functions – to provide financial services that adds value to the real economy. This in fact represents the very essence of Islamic finance. These are the very elements that are espoused in the Shariah principles that underpin Islamic finance and which explains its resilience during this international financial crisis.
The challenge before us is to build a new financial architecture that would allow for the more efficient functioning of not only financial intermediation within national economies but also across borders. Islamic finance, with its emphasis on a strong linkage to productive economic activity, its inbuilt check and balances and its high level of disclosure and transparency offers this prospect. Indeed, inherent in Islamic finance is the explicit elements that address several of the issues that have surfaced in the conventional financial system during the current crisis. Given the global dimension of the current crisis, the accelerated pace at which it has spread and the severity of its repercussions, it has called for a higher degree of collective determination by the international community to work together towards developing a global strategy that will evolve a financial system that is stable and sustainable over the entire business cycle. As Islamic finance continues to become an integral part of the global financial system, it will increasingly be exposed to risks of financial stress arising from global financial instability and global economic activity. This necessitates a greater global engagement between those that are driving the reform agenda given that it will result in new structures, standards and regulatory regimes for the industry. This is particularly important  BIS Review 123/2009  1  when such standards become the basis on which assessments are made by multilateral agencies, rating agencies and the market at large.