Zeti Akhtar Aziz: Building a robust Islamic financial system Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2nd International Conference on Islamic Banking, Kuala Lumpur, 7 February 2006. *  *  *  Let me first of all extend a warm welcome to the participants of this Second International Conference on Islamic Banking: Risk Management, Regulation and Supervision, jointly organized by the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank and the Islamic Financial Services Board (IFSB). This forum has an important role of not only fostering the dissemination of knowledge and exchange of experiences on the subject of risk management, regulation and supervision, in facilitating a better understanding on the issues confronting us, and thus contribute towards advancing forward the development of the industry. Effective risk management capabilities is particularly important in this more challenging global financial environment of heightened uncertainties and increased potential for financial vulnerabilities. And an effective regulation and supervision will ensure the soundness and stability of the system. In the recent decade, the Islamic financial system has experienced remarkable growth and transformation, demonstrating its potential as a competitive form of financial intermediation. Today, Islamic finance represents a multi-billion dollar industry with a comprehensive range of products and services, serving a broad spectrum of consumers and businesses that extends beyond the Muslim world. In developing the Islamic financial system, it is important to focus on the appropriate pre-requisites that will facilitate its efficient evolution.
As we advance forward, changes in the financial landscape will continue to accelerate and the level of complexity and sophistication in the financial markets will further intensify. Islamic banking institutions will need to reinvent themselves to meet the emerging issues, challenges and opportunities. The regulatory and supervisory approach and the methodologies to be applied must continue to evolve in order to remain effective and relevant. In addition, given the global dimension of the Islamic financial products and services, and the increasing interdependence of financial markets, efforts by individual countries to strengthen risk management practices needs to be matched by efforts to enhance the safeguards at the international level. The future prospect of the Islamic banking industry thus depends on the combined cumulative efforts by the industry, regulators, the market participants and the international community. The collective efforts needs to be coordinated to maximise the potential of the industry. Setting shared vision and common goals to be achieved would be an important first step. Of greater importance are the actions that needs to be taken to realise these goals. It will be the actions and initiatives which we take today that will contribute towards achieving the future that we aspire. On this note, I wish you a successful and productive conference. Thank you. 4  BIS Review 8/2006