The supporting financial infrastructure includes a robust regulatory and supervisory framework reinforced by the legal and Shariah framework, the payment and settlement systems, the development of the pool of talent and the mechanism for the liquidity operations of the Central Bank as part of its monetary policy. The development of efficient and active international Islamic financial markets The second challenge is to advance further the development of an efficient and active international Islamic financial market. Well-developed international Islamic financial markets enhance the liquidity of the instruments and risk management capacity of the players. This would promote the efficient functioning of the markets and thus facilitate capital flows and thereby strengthen global integration. Coordinated initiatives are therefore essential to foster the development of an efficient and vibrant international Islamic financial market. Sustainable supply of sukuks on a regular basis needs to be ensured. The participation of issuers including multilateral organizations, governments and multinational corporations would contribute to this process. In Malaysia, the domestic bond market now accounts for 80% of GDP. Of this, 44% of the papers are Islamic based. A fundamental pre-requisite is to promote innovation in the development of a broader range of Islamic financial market instruments. These include instruments with equity ownership features, Islamic assetbacked securities, inclusion of permissible forms of credit enhancements as well as Shariah-compliant risk mitigating instruments. The development of an Islamic derivatives market for hedging is required for market-making activities to support the development of secondary markets. Research and development therefore need to be intensified.

The Shariah principles must be embedded in each and every operational aspect of the Islamic financial institution, including in the design of financial products and financing structures, financial contracts and their execution, liquidity and balance sheet management, risk management as well as asset and wealth management. The upholding of Shariah principles must permeate from the highest level, including at the board and senior management levels, which provide the strategic direction for the Islamic financial institution and to the operational levels. Sound policies and practices premised on Shariah principles will evolve the Islamic financial system into a financial system that is distinctively ethical and that which promotes economic justice. To meet this objective of providing a total talent management solution for the global Islamic financial services industry and to meet the educational needs of the different levels of Islamic finance practitioners, including professionals and specialists in Islamic finance, Malaysia is establishing an International Centre for Education in Islamic Finance (INCEIF). INCEIF will commence operations in March this year and will offer professional certification programmes in Islamic finance. INCEIF will also forge strategic alliances with domestic and foreign academic institutions to offer post-graduate programmes, namely Masters and Doctorates in Islamic Finance with specific areas of specialization. A professional association for Islamic finance professionals will also be established for the alumni of INCEIF to keep abreast with the latest developments in Islamic finance.