Significant progress been achieved in particular in the Islamic capital market where the outstanding amount of Islamic private securities amounted to USD79 billion or 54.3% of the total outstanding private securities in the market. The number of Shariah-based unit trust funds have also increased to 136 with a net asset value of over USD5.2 billion while 85% of the listed Malaysian stocks are Shariah-approved counters. The second strategy is to accord greater emphasis on the enabling environment for increased innovation in the Islamic financial industry. The product range in Islamic finance has now expanded into a broad spectrum of innovative instruments, including investment and equity linked products based on musyarakah, mudarabah and ijarah. These products are competitive both in terms of product structure and pricing. The enhanced depth of the Islamic financial markets, in particular, the sukuk market, has increased the attractiveness of the Islamic financial instruments as an asset class for investment. The drive for innovation has been supported by the investment in human capital development. A sufficient pool of the talent and expertise has been key to the development of the Islamic financial hub in Malaysia. The International Centre for Education in Islamic Finance (INCEIF) was established in 2006. INCEIF which has an international faculty and students from more than 40 countries is focused on programmes for Islamic finance professionals and specialists in Islamic finance.

Islamic finance going forward There is now a strong and growing demand for Islamic financial products in the global market, far exceeding the current availability of financial products and services being provided by the Islamic financial institutions. Going forward, there is therefore tremendous upside potential for Islamic finance. As the pace of development of the Islamic financial services industry accelerates, the increasingly more complex and challenging environment will continue to shape the advancement of the industry. Central to this will be the expansion of the business parameters and innovative product offerings. For this, there is increased investment in research and development to yield new instruments and structures to meet the changing requirements of the international community. An area of focus, in particular, is related to the development of mechanisms for risk mitigation and liquidity management. Of importance, are the solutions needed to converge the market requirements and the Shariah compliance. Increased innovation also calls for greater emphasis on the implementation of best practices and higher standard of risk management. Vital to this is the implementation of the prudential standards promulgated by the IFSB. There is also a need to leverage more on IT applications and the strengthening of management capabilities of the Islamic financial institutions. Going forward, with the increased awareness and understanding of Islamic finance, the role of market discipline will become increasingly important in driving Islamic financial institutions towards ensuring Shariah compliance in the operations, in improving operational efficiency and in instituting sound and dynamic risk management practices.