While such a divergence of opinions in Islamic financial transactions is not a new phenomenon, it has now prompted increased international dialogue among the Shariah scholars from the different parts of the world. It is the closer linkages between the global Islamic financial markets and the increased platforms for greater engagement on Shariah issues that will contribute towards promoting an increased common understanding and mutual acceptance on the rules, standards and Shariah views, and for convergence to occur. This would evolve global Shariah standards for the Islamic financial industry. As Islamic finance continues internationalise with expanding scale, there will be greater financial intermediation linkages among the East Asian, West Asian, and the Middle East regions – creating the "New Silk Road". While this New Silk Road of financial flows is enhancing connectivity between Asia and the Middle East, both regions have, as in the case of the old Silk Road, extended the New Silk Road to the rest of the world. Global investors and the international financial community have already drawn benefits from the increased diversification of investment activity to the two regions. The expansion of the interlinkages of  4  BIS Review 136/2008  intermediation to and among these regions would in turn contribute towards a more efficient allocation of capital in the global financial system. Closing remarks Against a backdrop of an increasingly uncertain global environment, Islamic finance, as a form of financial intermediation in the international financial system, has continued to be viable and competitive.

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.