It was established to promulgate the international regulatory and supervisory standards for Islamic financial institutions worldwide aimed at achieving harmonisation of Islamic banking practices, fostering best practices and securing soundness and stability in Islamic finance. Another initiative to accelerate the integration of Islamic finance was the setting up of the International Islamic Financial Market or IIFM in 2002. The IIFM provides the environment to link all the financial centres around the world that participate in Islamic finance, thereby encouraging active participation by both Islamic and non-Islamic financial institutions  6  BIS Review 49/2005  in the secondary market for Islamic financial instruments. As the volume increases, it would strengthen the inter-linkages and integration amongst the Islamic financial centres. While having a Master Plan will provide a shared vision and a common goal, it needs to be recognised that the evolution of an Islamic financial system with all its component parts cannot be achieved within a short period of time. Having the medium and longer term goals outlined however, provides a basis to ensure the short term initiatives will be consistent and coherent with the long term objective. In other words, the construction of the building blocks must move in the right direction. As part of the process, each Islamic banking institution needs to formulate its own strategic plans and short-term action plans within this longer term perspective. With the foundations built and the plans in place, the future is by no means secure.

In addition, a legal fraternity that is competent in both Shariah and civil laws is also important. Finally, in a dual banking system, the tax legislation should accord neutrality in treatment between Islamic and conventional banking products. Sixth, the development of a comprehensive Shariah framework is a fundamental part of the process. Each institution offering Islamic products will need to establish a Shariah advisory committee to ensure that all Islamic transactions, products and operations are Shariah-compliant. Shariah decisions need to be made transparent to promote greater understanding and the acceptance of such decisions. Seventh, the importance of a robust and effective regulatory and supervisory framework cannot be over-emphasised. While the financial regulation and supervision of Islamic banking institutions would be similar, the areas such as capital adequacy, the liquidity framework have to take into account the unique risk characteristics of the Islamic banking models that accord the Shariah requirements. Sound corporate governance, transparency, accountability, disclosure, market discipline, risk management and consumer protection are common issues that need to be addressed. In a dual banking system, it is important that opportunities for regulatory arbitrage in banking practices should be eliminated. Eighth, research and development is important to incorporate core Islamic values into banking products and business models. Research and development, and leveraging on the advances in information and communication technology are also critical in ensuring performance and a more equitable distribution of profits and wealth among all stakeholders.