This brings me to my second point, for Islamic financial institutions to leverage the versatility and diversity of Shariah contracts, to consistently innovate and keep pace with the rapidly evolving economic landscape and demographic changes. In Malaysia, the universal scope of business under the Islamic Financial Services Act (IFSA) 2013 allows Islamic financial institutions to mobilise a wide range of solutions both on the asset and liability sides, towards delivering meaningful impact, beyond the traditional norms. For example, the adoption of mudarabah contract in Investment Account provides risk absorbent funding avenue for high-risk businesses to raise capital. The gaining traction of Investment Account helps to diversify the funding structure of Islamic banks, which is now close to 12% of total funding as at June 2021. Large potential to spur innovation therefore lies beyond the traditional adoption of Shariah contracts. The entrenched versatile feature within Shariah itself offers the latitude for innovation and creativity. This includes smart contracts, without compromising the fundamentals of Shariah. Optimising technological advancement brings wealth of benefits to efficiency and transparency, as well as manages risk effectively. This is particularly vital considering multiple applications of Shariah contracts in Islamic products and services that demand higher degree of transparency and disclosure, alongside ensuring information symmetry to customers and strengthening confidence to Islamic finance. Ultimately, we can become more inclusive by leveraging digital infrastructure through greater outreach to the underserved segment of the society.

But additional equity capital is now very expensive and perhaps also difficult to procure. The alternative for banks may be to hold back on lending. If they do this on a large scale, it will have considerable negative effects on output and employment. It is understandable that  BIS Review 17/2009  1  credit growth is now slowing, both because demand for credit is lower and because fewer investments are profitable. But in addition, it appears that banks are applying stricter criteria in credit assessments and rationing credit. Norges Bank’s Survey of Bank Lending shows the banks’ own perception of this practice. The chart shows that over the past year banks have reported a tightening of credit standards. It appears that credit flows to households have improved somewhat, but banks are still tightening credit standards for corporate loans. An important lesson to be learned from this economic crisis is that compelling banks to increase their equity capital when the downturn has already started has a considerably negative impact. It is important that banks have sufficient capital to make them resilient even if the downturn should persist over a longer period. For this reason, we have proposed government capital injections in banks. The government bond fund will buy bank and corporate bonds. In Norges Bank’s view, it is particularly important helps to improve demand for corporate bonds. The fund shall primarily buy high quality bonds. The chart shows that it is on the whole borrowers with weaker ratings that are now being excluded.