Zeti Akhtar Aziz: The international dimension of Islamic finance Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2007 INCEIF Global Forum "Leadership in Global Finance – The Emerging Islamic Horizon", Kuala Lumpur, 30 August 2007. *  *  *  It is my honour and great pleasure to be here to speak at this first INCEIF Global Forum, which has drawn together a distinguished gathering of scholars, researchers and practitioners from the financial services industry. Let me focus on the international dimension of Islamic finance which has continued to gain significance. Islamic finance now extends beyond the traditional predominantly Muslim economies to become an increasingly important part of the international financial system. Total assets of the Islamic financial system are estimated to exceed one trillion US dollars. It is among the fastest growing financial segments in the international financial system with an estimated annual growth of 15 to 20 percent. There is now a growing demand for Islamic financial products in the global market, far exceeding the supply of financial products and services that is being offered by the Islamic financial institutions. As we advance forward, the international environment in which we are operating is also rapidly evolving to become more complex, competitive and challenging. In the current environment it has become more volatile and uncertain. The challenge for Islamic finance is to evolve strategies that will ensure its competitiveness, dynamism and sustainability.

The intrinsic nature of Islamic finance encourages risk management and provides confidence through explicit disclosure and transparency of the roles and responsibilities defined in the contract. The transparent nature of the Islamic financial contracts and the need for underlying economic transaction reinforces the stability of the Islamic financial system. A vital challenge going forward is however to build a stronger, competitive and dynamic Islamic financial system that better reflects the internalization of Shariah principles in financial transactions, in its form, spirit and substance. This epitomizes the objectives of the Shariah in promoting economic and social justice. While developing Islamic financial system with products and services mirroring the conventional counterpart is acceptable as a pragmatic approach, it needs to develop further on its own paths and merits so as to maximize the potential benefits of Islamic financial system. Key to this is having an appropriate pricing benchmark to be an indicator for Islamic securities to be efficiently priced and credible. In addition, the role of Shariah scholars who have the full understanding of the mechanics of Islamic financial products and services, are key to ensuring its continued development. At the same time, Shariah decisions, when made, needs to be disclosed. This will allow others to appreciate the juristic reasoning, which in turn would lead to a wider acceptance of Shariah decisions, particularly if they have implications on cross-border transactions. As the Islamic financial system becomes increasingly more internationally-integrated, it is important to recognize the different regional and institutional strengths and complementarities and the need to maximize synergies.