To promote research in Islamic finance, the International Shariah Research Academy (ISRA) was established this year to conduct applied Shariah research on the contemporary Islamic  BIS Review 136/2008  3  finance issues. ISRA also provides a platform that promotes active engagement and dialogue among global Shariah scholars that promote mutual respect in Shariah and the convergence of views from different jurisdictions in the global Islamic financial system. The third strategy is to promote greater financial integration with the global Islamic financial system. The Malaysian Islamic financial system has also been progressively liberalised to allow for increased foreign entry and participation in our financial system, thus facilitating greater cross border flows and thus strengthening the international financial inter-linkages. This has taken the form of issuance of new licences and increasing foreign participation in both Islamic banks and takaful companies to 49%. New licences were also issued to foreign fund managers and foreign stockbrokers. In this new phase of development for Islamic finance, Malaysia as an international Islamic financial hub, has increasingly become a meeting place for businesses from different parts of the world that need to raise funds and for investors that have surplus funds for investment. Islamic finance going forward There is now a strong and growing demand for Islamic financial products in the global market, far exceeding the current availability of financial products and services being provided by the Islamic financial institutions. Going forward, there is therefore tremendous upside potential for Islamic finance.

Thus far, the global financial crisis has had limited direct effects on Islamic finance. While Islamic finance by its very nature only engages in transactions that have underlying tangible productive activities, the slower overall growth and the increased uncertainties have affected pricing and activity in certain market segments. However, this in part reflects the shift in activity from the financial markets to the Islamic financial institutions. The scope of Islamic financial business has now expanded to more sophisticated financial products in response to the changing global customer base. Such Shariah-compliant products include private equity, project finance, the origination and issuance of sukuk, as well as fund, asset and wealth management products. The sukuk market in particular, has  2  BIS Review 136/2008  become an important avenue for international fund raising and investment activities. This market has expanded by an annual growth rate of 40%. The year 2007 saw an exceptional growth of the global sukuk market which expanded by more than 70%. New issues during the year reached a record high to about $ billion and the outstanding global sukuk market has now surpassed the $ billion mark. Up until August this year, it has held its ground with a total global issuance now exceeding $ billion, and is expected to exceed USD200 billion in 2010. This growth is spurred in part by the growing funding requirements in emerging market economies, in particular, in Asia and the Middle East. This is reinforced by the continued confidence of investors in the Islamic financial instruments.