Commensurate with the diversity and complexity of takaful operational framework, products and services, the continuous upgrading of risk management practices, with improvements in governance standards and enhancements of information management systems will be critical. Under this environment, it is envisaged that takaful operators, individually or collectively, will play a bigger role in enhancing risk management practices, developing market conduct standards, fostering fair market practices and improving financial literacy among consumers. This will be even more important with the implementation of the risk-based regulatory regime, whereby the responsibility for the implementation of sound risk management and market conduct governance, as well as assessment of risks and management of the financial condition of a takaful operator, will rest increasingly with the Board of Directors and Senior Management of the takaful operators. Moving forward, a differentiated regulatory approach will increasingly be adopted, where companies that exhibit strong corporate governance and risk management practices will be given greater regulatory flexibility and may enjoy greater capital savings. Secondly, it is vital to have in place an efficient and cost-effective delivery channel for the takaful business, strategically aligned to fulfil the participants' reasonable expectation. BIS Review 84/2006  1  Bancatakaful strikes as an attractive value proposition that enables takaful operators to tap into banking institutions' large customer base and attract the existing clientele of the latter to have access to integrated financial service offerings in the most cost effective manner. Strategic alliance in the bancatakaful arrangement has indeed shown a significant improvement in the takaful contributions over the past few years.

The takaful industry continues to exhibit good financial results each year, as reflected in the three-fold increase in total assets to RM6.5 billion in June 2006, as compared to RM1.9 billion five years ago. More significantly, average doubledigit growth rate of 18.9% for net contributions of combined family and general takaful in the past three years, demonstrated the high potential of the industry. Whilst sustaining the current pace of development, there still exists high growth prospect for the takaful sector, in view of the large untapped potential, with the market penetration rate recorded at merely 6.1% in June 2006. Ladies and gentlemen, Bank Negara Malaysia has laid down a number of initiatives to further enhance the competitiveness and growth momentum in the development of the takaful industry. These initiatives emphasised on enhancing operational efficiency, strengthening corporate governance and risk management as well as improving the market practices and consumer awareness. All players need to capitalize on these initiatives for the takaful industry to achieve sustainable success and unleash the potential gains of the Islamic finance in Malaysia and abroad. Allow me to share some significant developments that may shape the future direction of the takaful industry moving forward. Firstly, as the prudential framework evolves towards a predominantly principle-based and riskbased regulatory approach, there will be a greater emphasis on risk management, corporate governance and transparency so as to maintain investor confidence and public trust.