New ancillary players such as money brokers have facilitated the development of this market. Islamic finance as a sustainable intermediation process in this more challenging environment has been characterised by powerful forces of change that have brought significant implications on both the domestic and global financial systems, and marked by turbulent financial conditions. This requires the development of robust and resilient financial institutions. Institutional capacity enhancement is a central strategy towards this objective. This requires having a high calibre workforce and management teams with the required expertise, leveraging on the technology, strengthening research and development, and instituting risk management systems. A structured consumer education programme has increased awareness of the Islamic financial system and the advances it offers. The Islamic capital market essentially comprises the equity market and the debt market. Phenomenal growth has been recorded in both these markets. In the debt market, the outstanding Islamic debt securities as at-end June 2003 were 45.5% or RM68.2 billion of the total outstanding private debt securities. In 2002, the new issuance of Islamic debt securities surpassed the conventional private debt securities amounting to RM13.8 billion. It is interesting to note that one-third of the issues have been by multinationals. In the equity market, more than 80% of the counters in the Kuala Lumpur Stock Exchange are Shariah-compliant. The takaful market has also shown impressive growth and the four takaful companies now offers a broad range of products in both family and general business which is comparable to the conventional counterparts.

In doing so, first, let me start with the current financial crisis and its relation with global financial imbalances and economic integration. Then I will briefly discuss the stage of Asian economic integration and highlight the benefits it rendered in cushioning a number of regional economies from the adverse effects from the crisis. After that, I will draw the lessons from the current crisis that should further help gear our integration towards the path that reaps the most benefits and minimizes potential risks along the way. Ladies and Gentlemen, During 2004-2006, one of the main potential threats to the world economy centred around the global financial imbalances arising from the chronic and rising US current account and fiscal deficits. Although most economists believed that the situation was not sustainable, no one could predict the timing and extent of the unwinding process, nor whether the US would face a hard on soft landing. The current crisis, unfortunately, manifests an abrupt unwinding of the imbalances. The trigger point of the crisis is clearly the subprime lending problem in the US, a new phenomenon. However, most economists would agree that the root cause of the crisis lies beneath excessively accommodative monetary policy that led to excessive credits, and in turn, to asset price bubbles, a repeating cause of past crises. Other important driving factors behind rising credit expansion and bubbles included rising financial innovation and its complexity and lax supervision. The global financial imbalances could not have heightened rapidly since the early 2000s without fast rising global economic integration.