3  AAOIFI is Accounting & Auditing Organisation for Islamic Financial Institutions  4  International Organisation of Securities Commissions  5  International Association of Insurance Supervisors  2  BIS central bankers’ speeches  •  Between our two countries, we are seeing Malaysian banks collaborating with Singapore corporates and financial players to structure $ denominated corporate sukuk programmes. And Singapore-listed companies are venturing out to tap the Ringgit sukuk market in Malaysia. These are trends that we are keen to encourage. To repeat therefore, I am optimistic that we can realise the significant growth potential for Islamic finance in the next 10–15 years. Managing the challenge of capital flows in the post-crisis era Let me move on now to say a few things about the challenges that many in the emerging world face in managing capital flows, particularly in the face of the extremely low interest rates being set in the advanced economies (AEs). We are in an unprecedented situation. Interest rates are expected to stay extremely low in the US and much of the advanced world for a few years, reflecting decisions by their central banks to keep monetary conditions highly accommodative until their economies resume normal growth. There is debate among economists on how effective these activist monetary policies, such as the US Fed’s QE3 strategy, will be in reviving entrepreneurial spirits and private investments. If the strategy succeeds and the US economy recovers, it will be a plus for Asia as well.
Fifth, central banks and regulatory authorities in most emerging economies in Asia have the broader mandate that includes a focus on the development of the financial sector as a means not only to enhance the growth and development potential, but also to reinforce a strong foundation for financial stability. In Malaysia, the development and reform of the financial sector in the decade that followed the Asian financial crisis has not only developed the financial sector to better serve the Malaysian economy, but it has also better positioned financial institutions to withstand the destabilising episodes emanating from external shocks. This has included strengthening financial intermediaries, not only in terms of scale but also in their financial positions, risk management and governance practices. This has contributed to more efficient financial intermediation while improving access to financing, particularly for small and medium scale businesses. Efforts to develop a vibrant capital market have meanwhile opened up alternative channels for financing, while mitigating concentration risk in the financial system and enhancing its ability to absorb large and volatile cross-border capital flows. These factors will place Asia on a firm foundation to achieve its growth and development goals. While public policy clearly has an important role, it is as important for the financial industry to align itself with the desired outcomes of sustainable growth within a longer term horizon.