This approach necessitates greater empathy, which can pave the way for Islamic banks to develop more tailor made financial solutions. Assessment of financial applications would also be based on potential value creation and not on credit scores alone – thus opening up exposure to larger segment of potentially viable businesses. This is central in uncovering new markets, such as within the presently unserved and underserved segment of society. A VBI-driven financial institution – would actively seek out opportunities to assist aspiring entrepreneurs that may be struggling to obtain funds, but have business models that, despite being untested, are more socially responsible or green in nature. VBI therefore considers a broader spectrum of criteria as opposed to the traditional method that places emphasis on credit history and availability of collaterals. VBI also promotes more holistic offerings for entrepreneurs and I would like to suggest several examples to illustrate – how Islamic banks can extend its scope of business to benefit SMEs. In providing infrastructure support, an example is through provision of physical premises that can be rented by SMEs to conduct their businesses at lower rentals. There is an example of a product in the market today, where factory spaces are provided for SMEs to rent at affordable rates, equipped with amenities to cater to the needs of the entrepreneurs. In addition, entrepreneurship training and consulting services are also offered to them. This can particularly assist in increasing entrepreneurial involvement in the manufacturing industry.

Another striking feature is the fact that the international flows are currently dominated by private capital, which is in sharp contrast to what is has been two or three decades ago when official capital flows used to play a key role. This trend has been greatly supported by the liberalisation of capital flows, both in the advanced countries and in the emerging markets. The belief has prevailed that in a long run, free movement of capital is welfare enhancing, as it leads to more efficient allocation of capital, faster economic convergence of less developed countries, better consumption smoothing, and diversification of financial portfolios. Even though these benefits are undisputed, free capital mobility has also created many challenges. On the macroeconomic level, for example, we have observed many currency crises followed by painful stabilisation periods. These crises have often been preceded by periods of fast capital inflows, aggravating vulnerabilities in the domestic financial sectors of the emerging market economies. These financial weaknesses have then functioned as an important transmission channel for macroeconomic shocks, leading to “twin crises”, i.e. a vicious circle of currency depreciations and failures of financial institutions. The Asian crises in 1997-1998 and the recent experience of Argentina are examples of such modern twin crises. Another challenge related to the massive and liberalised capital flows lies in the area of international fraud and money laundering. The detection of such activities is a crucial preventive policy objective. Money laundering enables criminal activities to grow and cause further damage, the most serious case being terrorist financing.