Of importance is to develop a broader range of Islamic financial market instruments that include instruments with equity ownership features, Islamic asset-backed securities, inclusion of permissible forms of credit enhancements as well as Shariah-compliant risk mitigating instruments. The development of an Islamic derivatives market for hedging is required for market-making activities to support the development of secondary markets. Malaysia has recently established a Shariah Scholar's fund to fund such research and development efforts. The fund also aims to promote greater engagement among the international Shariah scholars and thus provide a platform for deliberation on the Shariah compatibility of newly developed Islamic financial instruments and markets. As Islamic finance continues its robust international expansion, an adequate supply of talent and expertise is vital to support the growth. While shortages in talent are now being felt, this is being addressed on several fronts. To develop the expertise to meet the increasing manpower requirements of Islamic finance, Malaysia has in 2006 established the International Centre for Education in Islamic Finance (INCEIF). It is envisioned that INCEIF acts as a professional certification body and education institute for post-graduates in Islamic Finance. Reinforcing this is the International Centre for Leadership in Finance (ICLIF) in Malaysia that provides for leadership and management programmes for the financial services sector including for Islamic finance. As Islamic finance forges ahead, successful Islamic financial institutions will be those that have the scale and are able to exploit the full potential and opportunities that arise from the advances in information technology (IT).

An important element of Islamic finance is the strength and soundness it derives from its Shariah principles. Islamic finance has an inbuilt dimension that promotes soundness  2  BIS Review 121/2007  and stability, underpinned by the Shariah injunctions. These Shariah injunctions essentially interweave the financial transactions with genuine productive activities. The soundness and viability of Islamic finance as a form of financial intermediation is premised on the fundamental requirement that Islamic financial transactions need to be supported by an underlying productive activity. There is therefore always a close link between financial and productive flows. The financial transaction has to be accompanied by genuine trade or lease-based and business related transactions where interest is eliminated and profits or rentals are the economic rewards. Alternatively, the Islamic financial institution may enter into a joint venture as a means of financing, in which it becomes a joint partner in the economic activity based on a pre-specified profit sharing arrangement. In addition, there are also explicit restrictions on unethical and speculative financial activities. The intrinsic nature of Islamic finance also encourages risk management and provides confidence through explicit disclosure and transparency of the roles and responsibilities defined in the contract. In Islamic finance, strategies to minimize and manage the risks involve integrating the risks in the real activities. The real activities thus need to generate sufficient wealth to compensate for such risks. In contrast, conventional instruments generally separate the risks from the underlying assets.