Importantly, Islamic finance has the disposition to facilitate financial deepening without financial excesses through the fundamental Shariah requirement for Islamic financial transactions to be supported by an underlying economic activity. Moreover, the profit-sharing and risk-sharing characteristics of Islamic financial transactions strengthens the incentives for Islamic financial institutions to undertake the appropriate due diligence on the Islamic financial transactions to ensure that the profits are commensurate with the risks assumed. T he Shariah board of Islamic financial institutions additionally serve as a vital institutional safeguard to ensure that the inherent strengths of Islamic finance are fully realised. This accommodates innovative activities in a manner that achieves the objectives of protecting customers and the system on an ongoing basis. Islamic finance is essentially also consistent with the “equator principles”, the voluntary guidelines governing social and environmental risk in project finance which are increasingly growing in prominence in this post-crisis era as an integrated approach to sustainable and more responsible banking and finance. Ladies and gentlemen, The third implication relates to the mobilisation of stronger international cooperation in the pursuit to preserve global financial stability, particularly in the light of an enhanced internationalisation of Islamic finance. This post-crisis era will usher in a new chapter in the  4  BIS Review 64/2010  development phase of Islamic finance. The trend of internationalisation can be expected to be more pronounced.

Today, it is precisely this element in Islamic finance amongst others, that are highly relevant to the discussions on the reform of the national and international financial system so that we have a system of financial intermediation that is stable, sustainable and contributes to global growth. In ten years now Islamic finance has experienced accelerated growth and the financial landscape has undergone a major transformation with great progress achieved on many fronts. The transformation is particularly evident in three dimensions, firstly, Islamic finance has evolved into a complete and competitive form of financial intermediation, effectively serving consumers and businesses, both Muslims and non-Muslims. Islamic finance has become a competitive form of intermediation with several established conventional players now entering the Islamic finance industry, resulting in more diverse Islamic financial institutions with wide spectrum of product range. Secondly, this recent decade has also seen significant milestones being achieved in the area of the international Islamic financial infrastructure of Islamic finance since the establishment of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in 1990. In 2002, the Islamic Financial Services Board (IFSB) was established as an international prudential standard setting body for Islamic finance. The IFSB with a membership of now 50 regulatory authorities has since developed a number of standards ranging from capital adequacy requirements to standards for governance and risk management, taking into account the specificities of Islamic finance.