In advancing the Islamic financial inclusion agenda, crucial criteria such as injection of innovation and enhancement of products and services as well as distribution channels to reach targeted groups especially the rural areas are essential:  4  BIS central bankers’ speeches    One of such example in Malaysia is the introduction of profit and risk sharing investment accounts, where savings are matched with funding required by SMEs for financing specific projects.   Greater outreach to microenterprises and SMEs can also be achieved through the wider application of equity-based structures in financing for Islamic microfinance and SMEs. This contributes towards the overall objective of generating inclusive growth that enhances job creation.   Other financial products such as microtakaful and waqf can also provide a financial solution for lower income groups and small businesses.   Through Islamic finance, we can also further explore the concept of agent banking or branchless banking to leverage on the role of traditional community centres such as mosques. This would harness more efficient means of outreach amongst Muslims, which is of particular relevance in many OIC Members.   Another important sphere that has not been explored exhaustively, Islamic financial institutions may also leverage on its large distribution network to facilitate the collection and mobilisation of zakat and waqf. Fifth, proportionate regulation can achieve objectives of inclusion, stability and integrity Proportionate regulation ensures that the costs of regulation do not outweigh the benefits of regulation and that regulation is commensurate to risks.

Yet it also introduces distortions into resource allocation that may prove costly. Accordingly, ahead of any regulatory proposal it is more than advisable to assess the scope of these distortions. The book, in various chapters, correctly identifies potential adverse effects of what is categorically referred to as a “regulatory tsunami” or even, as one author puts it, a “regulatory orgy”. The text broaches the possibility that the pace and scope of regulatory change might be affecting the liquidity of certain securities markets and also risk-taking by relatively unsupervised sectors, and may be reducing banks’ loan-granting capacity or lessening competition, among other developments. The authors rightly suggest that the reasonableness of the changes, their parameterisation and their implementation schedule must be properly evaluated taking into account not only their direct contribution to financial stability but also possible side-effects. One idea intimated in the analysis is that, given the risks over-regulation entails, an alternative approach might be to economise on regulatory changes and to increase supervisory intensity instead. That is to say, there should be an attempt to contain the avalanche of new regulatory requirements applicable across the board, replacing some of them with intrusive supervisory measures, adapted to each bank’s specific situation. This is admittedly a very attractive idea which I would like to explore in the rest of my speech. Supervisory challenges Until recently, core supervisory actions in many jurisdictions had focused, perhaps excessively, on the surveillance of banks’ solvency through the monitoring of capital ratios as defined under current regulations.