Zeti Akhtar Aziz: Metamorphosis into an international islamic banking and financial hub Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the ASLI’s World Islamic Economic Forum, Kuala Lumpur, 1 October 2005. *  *  *  Distinguished guests, Ladies and gentlemen, I am honoured to deliver this luncheon address on the occasion of the inaugural World Islamic Economic Forum organised by the Asian Strategy & Leadership Institute (ASLI). Allow me to take this opportunity to share with you Malaysia’s experience in evolving a comprehensive domestic Islamic financial system that has now become an increasingly more internationally-integrated financial system, thereby strengthening our economic and financial inter-linkages with the rest of the world. In evolving the Islamic financial system, important considerations include the development of a system that is able to meet the changing requirements of the consumer and business community, that is efficient and competitive, that is safe and sound and that is robust and resilient and able to withstand a more challenging and uncertain world environment. These considerations are vital to ensure the sustainability of the system not only as a form of financial intermediation in the domestic economy but also as an integral component of the international financial system. Evolving a robust islamic financial system Malaysia has adopted a holistic approach in developing its Islamic financial system. Our initial focus was to develop a comprehensive domestic Islamic financial system.

These new entrants with distinct capabilities and strengths will not only participate in the growing domestic Islamic banking industry, but will also be able to tap new markets in the region. This initiative will also promote healthy competition, thereby contributing to elevate the domestic industry to new levels of dynamism. In addition to this initiative, up to 49% foreign interest is permitted in the Islamic subsidiaries of the conventional banking institutions and in the takaful companies. The increased international integration is also reinforced by our own institutions venturing beyond our domestic borders, in particular to the Asian region and to the Middle East. This international integration would contribute towards facilitating greater cross-border flows in terms of increased trade and investment transactions, thereby strengthening the global economic and financial inter-linkages. Apart from banking, Malaysia is also initiating efforts to promote takaful internationally. This is being done in close coordination with the Islamic Development Bank where a taskforce has been established to spearhead, among others, the development and promotion of trade, investment, Islamic banking as well as takaful and retakaful industries among OIC member countries. Among the main initiatives to be undertaken under a Memorandum of Understanding signed between Malaysia and the Islamic Development Bank is to specifically promote and expand takaful and retakaful businesses in the member countries. A further initiative by Malaysia was to access the international capital market with the issuance of global Islamic financial instruments. The Government of Malaysia made this inaugural primary issuance of a globally-accepted sovereign Islamic sukuk in 2002.