Intrinsic strength of Islamic finance Islamic finance has, thus far, remained positive, despite the current challenging global financial environment. The strengths in Islamic finance are derived from the Shariah principles, the key pillar of Islamic finance that has contributed towards its overall stability and resilience. The Shariah injunctions require that the financial transactions be accompanied by an underlying productive activity thus giving rise to a close link between financial and productive flows. In addition, under the risk sharing arrangement, the Islamic financial institution will share the profit or loss incurred by the entrepreneur. Under this arrangement, there is an explicit risk sharing by the financier and the customer and the real activity is expected to generate sufficient wealth to compensate for the risks. This arrangement, thus, entails the appropriate due diligence and the integration of the risks associated with the real investment activity into the financial transactions. In addition, the Shariah principles also prohibit excessive leverage and speculative financial activities thus insulating the parties involved from excessive risks exposures. The intrinsic principle of profit and risk sharing thus provides an in-built check and balance to the Islamic financial transactions. Explicit in this arrangement is the element of risk management and governance practices. Hence, it is a modality in which there is strong explicit emphasis on the economic viability of the underlying assets and on good governance, ethics and transparency. A demand-driven industry with growing potential This decade has seen the global Islamic finance industry evolve from being faith-based to a business driven industry for all communities.

Zeti Akhtar Aziz: Islamic finance – a global growth opportunity amidst a challenging environment Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the State Street Islamic Finance Congress 2008, Boston, 6 October 2008. *  *  *  This decade has witnessed the rapid evolution of Islamic finance. This has resulted in the dramatic transformation of the industry, from being focused on retail financing to providing an extensive spectrum of financial products and services, from being focused on the Muslim community to having an extended reach that serves the non-Muslim community, from being governed by conventional regulatory and accounting standards to having promulgated its own standards and finally from being domestic centric to becoming increasingly internationalised. The Islamic financial services industry has during this decade transitioned into a dynamic, fast growing and competitive form of financial intermediation servicing the global community. It is my honour and great pleasure to be here in Boston to participate in this inaugural State Street Islamic Finance Congress. With the recent evolution and expansion in Islamic finance, it has now emerged as a viable new asset class for investors and a competitive form of financing for businesses. It has therefore, not only allowed for the further diversification of risks, but, the resulting higher level of foreign participation and the increased cross border flows has not only strengthened international financial inter linkages between nations but also contributed to the more efficient international allocation of resources across borders.