Zeti Akhtar Aziz: The rise and effectiveness of corporate governance in the Islamic financial services industry Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2nd Islamic Financial Services Board (IFSB) Summit, Doha, 24 May 2005. *  *  *  "The hallmark of the Islamic financial system lies in the high ethical values that underpins the governance and business operations of Islamic finance. As the pace of development of the industry accelerates and as the environment becomes increasingly more complex and challenging, securing a robust and resilient financial system has increased the demands for having a solid governance structure for the Islamic financial institutions. The challenge is essentially to evolve strategies that will promote the adoption of strong and effective corporate governance practices that also facilitates innovation and that supports business operations. Central to this common vision is to create a comprehensive governance framework for Islamic institutions and to formulate appropriate implementation strategies that will be able to meet the requirements of the dynamic industry while promoting confidence and stability in the Islamic financial system." It is my honour to be invited to speak before this distinguished audience at this summit organised by the Islamic Financial Services Board on the rise and effectiveness of corporate governance in the Islamic financial services industry. While the adoption of governance best practices is not an end in itself, it is an important supporting infrastructure that is vital to achieving high performance and the continued advancement of the industry.

Strengthening the robustness of the corporate governance framework and practices has become even more important in today's environment of greater uncertainty and heightened risks. Indeed, it is timely that efforts are focused to strengthen the corporate governance in Islamic financial institutions given the wider range of contracts entered into by the Islamic financial institutions and their customers that inherent in Islamic finance. In particular, the efforts should include the formation of an appropriate governance structure of the institution and the requirement for full disclosure. My remarks today will focus on five key areas important for securing an enhanced governance framework for the Islamic financial institutions that takes into account the role and responsibilities of the shareholders. My presentation will also touch on the experience and approach that Malaysia has adopted to secure a robust governance framework for the Islamic financial institutions. Firstly, the task is to ensure the design and implementation of the corporate governance strategy should not impose a regulatory burden to the business objectives and the growth potential. In designing and implementing corporate governance standards and core principles for Islamic financial institutions, the challenge is to formulate a framework that does not only take into account the unique characteristics peculiar to Islamic financial business, but that fosters innovation and competition thereby support the growth potential of the industry. Essentially, the design and strategies needs to secure the twin objectives of achieving continuous business performance and robust corporate accountability.