These ancillary institutions must have the ability to provide their services that are in accordance with the Shariah principles. Tenth, consumer education and awareness about Islamic banking is critical to its success and future development. A consumer education programme needs to be developed to enhance public awareness of the features of Islamic banking products and services. Translating the action plan into reality The appropriate Islamic banking system for a country would be largely based on the national agenda of the respective countries, the objectives that the system hopes to achieve and the available resources. For the adoption of a dual banking system, the conventional banks have the option of offering Islamic banking products on a window basis or via full-fledged Islamic branches or an Islamic subsidiary. Conventional bank may also be converted to operate as an Islamic bank. Alternatively, the Islamic banking system may only comprise Islamic banks newly created to operate in parallel with the conventional banking system. In addition, the government can upgrade existing Islamic savings institutions to Islamic banks; license foreign Islamic banks as a consortium or on joint venture with local banks; or a combination of these options to achieve its objective. Alternatively, a country may wish to adopt a system-wide Islamic banking and finance, a single banking system that fully accords the Shariah framework. Allow me to take the opportunity to present the Malaysian experience. The development of Islamic banking has transitioned through four distinct phases. The first phase involved the establishment of Islamic financial institutions.
2  BIS Review 49/2005  Pre-requisites of the Islamic banking system The development of a vibrant and dynamic Islamic banking system that has a meaningful role in a nation's future economic and social development requires well-defined strategies that focus on two main areas, building institutional capacity and the development of the supporting financial infrastructure. Allow me to highlight the key areas of the strategies. The first task is to identify the nature of Islamic banking system that is appropriate for the country - whether to ultimately adopt a dual banking system where Islamic banks and conventional banks offering Islamic banking products operate in parallel with the conventional banking system, or alternatively to adopt a single banking system that fully accords the Shariah injunctions where all the banks are Islamic. Second, measures need to be in place to ensure that the Islamic banks are well-capitalised and resilient. For Islamic banks that are already in existence, clear criteria need to be specified on the minimum capital size that would enable them to be significant players in the market, be able to gain from economies of scale, have a diversified earnings base and stronger market presence. Such minimum size can either be achieved through organic growth or merger with a partner bank which would bring about the desired outcome in a shorter period of time. Incentives can be provided to induce the banks to consolidate while guidelines on minimum capital size can be imposed to ensure that the banks either merge or undergo a recapitalisation exercise.