Zeti Akhtar Aziz: Fostering leadership role in Islamic finance
Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launching of Hong Leong
Islamic Bank Berhad - "Fostering Leadership Role in Islamic Finance", Kuala Lumpur, 19 July 2005.
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Bismillahirrahmanirrahim
Y.Bhg. Tan Sri Quek Leng Chan,
Chairman of Hong Leong Bank and Hong Leong Islamic Bank
Encik Daud Abdullah, Managing Director, Hong Leong Islamic Bank
Ladies and Gentlemen,
It is my pleasure to be here today to commemorate the official launch of "Hong Leong Islamic Bank
Berhad". This establishment of the Islamic subsidiary represents the on-going institutional
transformation in the Islamic banking system in our Islamic financial system. The underlying
philosophy for the incorporation of an Islamic subsidiary is for the further strengthening the institutional
structure for Islamic banking business operations. The emergence of Hong Leong Islamic Bank in the
Islamic financial landscape will further increase the diversity of players in the Islamic financial system
and enhance its potential to contribute to the further development of our Islamic financial services
industry.
Ladies and Gentlemen,
Today, the Islamic financial services industry in Malaysia has emerged as a viable and competitive
component of the financial system that contributes towards enhancing wealth creation and the nation's
economic development. The advancement and progress that have been achieved thus far have
opened new frontiers for the Islamic financial services industry. The broad strategies that have been
adopted as outlined in the Financial Sector Master Plan and the actions and initiatives taken leading to
the rapid development and growth of the domestic Islamic banking industry have all contributed to the
achievements we have realised today.
Indeed, the recent two years have seen the Islamic financial landscape being significantly redefined -
the establishment of Islamic subsidiaries, the issue of new licences to foreign players, and the
initiatives of our domestic institutions to venture abroad. These developments have increased the
potential for international integration of our Islamic financial system. The liberalisation of our domestic
bond market to allow multilateral and multinational corporations to raise Ringgit denominated
instruments in our market has also expanded the volume of Islamic instruments in our financial
markets. More recently, an Islamic equity index was introduced increasing further the potential for the
deepening of the domestic capital market.
In the area of Shariah, Bank Negara Malaysia has introduced the Shariah governance framework in
April this year as one of the initiatives to strengthen the role and involvement of the Shariah scholars
in the development of Islamic finance. Today, a larger pool of Shariah scholars has been created to
better serve the needs of the industry and the plan is to further develop them to emerge as prominent
Scholars who can serve both domestic and international Islamic financial communities. Recently, Bank
Negara Malaysia also organized a closed-door Shariah Scholars Dialogue attended by fifty prominent
local and foreign scholars. This dialogue will now be held annually to serve as a platform for
cooperation among the Shariah scholars to promote greater understanding on emerging
developments across the world in the area of Islamic finance. This is to promote a greater
understanding on the approaches taken by different jurisdictions in their Shariah interpretations. To
support the Shariah scholars' activities especially in the areas of research and capacity building, Bank
Negara Malaysia has also allocated a RM200 million endowment fund to meet the financing
requirements of the Shariah Scholars' Dialogue research activities and the provision of scholarships. It
is hoped that this will contribute towards greater understanding in the process of harmonizing the
international implementation of Shariah in Islamic finance.
These initiatives have contributed to the success in the creation of a robust Islamic financial
environment. It is further supported by the requisite financial infrastructure that includes the financial
markets and that is reinforced further by a comprehensive regulatory, prudential, legal and accounting
framework. These elements have provided an enabling environment that increases the potential for
Malaysia to evolve as an Islamic financial centre. These measures, however, need to be reinforced by
efforts by the Islamic financial institutions to take on a more active role in promoting Islamic finance.
Indeed, the rapid progress of Islamic banking over the last two decades would not have been possible
without the pioneering efforts of the Islamic financial institutions in building up a successful and vibrant
industry. In conjunction with the 30th Meeting of the Board of Governors of the Islamic Development
Bank in June this year, an initiative was taken to develop a ten-year Master Plan for the Islamic
Financial Services Industry. The Master Plan for the global development of Islamic finance is now
being finalised by the Committee established by the Islamic Development Bank and the Islamic
Financial Services Board. The Plan will provide the strategic direction envisioned for the development
of Islamic financial services, looking beyond the near term and taking a longer-term perspective into
the needs and requirements of the future. Islamic financial institutions thus need to adopt a positive
approach in re-inventing themselves to meet the emerging issues, challenges and opportunities.
In the domestic Islamic financial sector, despite the achievements that have been achieved thus far,
the need remains for the Islamic financial institutions to strive to further enhance their capacity and
capability so that they will be on par with global Islamic players in terms of efficiency, effectiveness
and financial soundness. As we enter into an increasingly challenging environment, the ability of the
Islamic financial institutions to compete by creating innovative and differentiated products, and by
adopting strategic positioning to increase unique and tangible value to their customers will be the key
to determining performance and relevance. It is imperative that players in the Islamic financial industry
reposition themselves to create a unique and sustainable competitive position in responding to the
changing environment.
Islamic financial institutions may now also take the opportunity under these new institutional
arrangements to explore opportunities for building strategic partnerships to acquire new expertise and
develop new value added activities. The move toward strategic partnerships would create potential for
greater innovation and expansion of the market. Such strategic partnerships would also enable Islamic
financial institutions to tap the best talents from a broad range of fields.
With the experience that has been built up in Islamic banking and finance over the years, it is timely
and desirable to extend our wings beyond our shores. New markets need to be identified to expand
business operations, especially in the Asia-Pacific region, which offer considerable opportunities.
There is a vast business potential to be tapped as several regional countries are progressively
opening up their economies to greater foreign participation. Islamic financial institutions are strongly
encouraged to continue their efforts by taking the lead to establish collaborative partnerships and
develop new approaches for financing facilities in this region. To succeed, adequate resources would
need to be allocated to build distinct capabilities in these areas and to put in place the proper risk
management systems and sound corporate governance practices.
It is equally critical that institutions play their role effectively and efficiently to generate improvements
and growth in Islamic finance. Of importance, is the firm commitment towards performance and
capacity enhancements with the readiness to invest in talent and skills to spearhead the development
of Islamic financial industry. Therefore, it is important for the Islamic financial services industry to
continually promote human capital development and expertise to create a larger pool of experts and
high calibre professionals. This involves attracting not only the existing talent pool, but also building a
robust pipeline of skilled human resources for the future. This is vital to drive the development of the
industry to greater heights.
Ladies and Gentlemen,
On this occasion of the official launch of Hong Leong Islamic Bank Berhad, it is with pleasure that I
congratulate Hong Leong Bank Berhad for its interest and commitment to contribute to the success of
Islamic finance by allocating resources in having a dedicated subsidiary to drive its Islamic banking
business forward. The establishment of the Islamic subsidiary is a positive step forward in the
aspiration of making Malaysia as a leading and attractive integrated Islamic financial hub.
I wish Hong Leong Islamic Bank Berhad every success in its endeavours.
Ladies and Gentlemen,
Dengan lafaz Bismillahirrahmanirrahim, saya dengan sukacitanya merasmikan pelancaran "Hong
Leong Islamic Bank Berhad".
Terima kasih.