Mohd Razif bin Abd Kadir: Our strategy towards developing a progressive takaful industry Keynote address by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the official launch of AIA AFG Takaful Bhd. (a joint-venture company between American International Assurance Bhd. and Alliance Bank Malaysia Berhad), Kuala Lumpur, 28 January 2011. *  *  *  It is indeed an honour to be here this morning to commemorate the launching of AIA AFG Takaful Bhd. This occasion marks another accomplishment in the takaful industry in Malaysia, with the collaboration between two major players from the banking and insurance sector; American International Assurance Bhd. and Alliance Bank Malaysia Berhad, in forging a strategic alliance aimed to attain synergistic benefits that are of mutual business advantage. As we continuously position ourselves towards achieving a dynamic, competitive and efficient Islamic financial system that is able to contribute to the overall development of our economy, the launching of AIA AFG Takaful Bhd. is another important milestone in our strategy towards developing a progressive takaful industry that is resilient and is better able to meet the increasingly challenging and competitive business environment. I therefore wish to congratulate both partners on this momentous event. The evolution of the takaful industry in Malaysia has been a progressive one since its inception more than two decades ago.

A robust Shariah governance framework is another important element to assist the takaful industry in achieving full Shariah compliance in the development and application of their products and services. Given that Islamic finance has its roots in Shariah, it is an overarching requirement for an Islamic financial institution to ensure that its objectives and operations are in accordance with Shariah principles. Recent enhancements to the Shariah governance framework are aimed to assist Islamic financial institutions in meeting this overarching requirement, through further strengthening of the existing Shariah governance process, decision making, accountability and independence. Reinforcements of the Shariah compliance functions include introduction of internal Shariah review and audit requirements, supported by an appropriate risk management process and research capability. The new framework is envisaged to contribute towards evolving a more robust and sound Shariah  2  BIS central bankers’ speeches  governance framework within Islamic financial institutions, with the establishments of end-toend Shariah compliant control mechanism that promotes greater Shariah observance throughout an organisation. Effective implementation of the new Shariah governance framework will further promote stakeholders’ confidence and enhance the integrity of the Islamic financial industry, and for the takaful industry, by reducing the risk of Shariah noncompliance, takaful products would be at a more competitive edge in comparison with conventional insurance products, as discerning customers would opt for takaful as their ethical financial solutions. In respond to the ever changing business environment, it is imperative for takaful operators to enhance their institutional capabilities and operational efficiency with the aim to strengthen their competitive position.