The players in the Islamic financial industry must therefore, have in place robust risk management practices and system. In this regard, the establishment of the Islamic Financial Services Board has been timely. The IFSB has the important mandate of developing the prudential standards in accordance with the unique features of the Islamic financial institutions. Given that the IFSB and the existing standard setting body embraced common objectives, l do not see any difficulty in integrating the international standards with the Islamic prudential standards. This will contribute towards the development of a robust and resilient Islamic financial system that can effectively preserve financial stability and contribute to balanced growth and development. This will also facilitate the integration of the Islamic financial system as a viable component of the global financial system. Over the years, the Islamic financial industry has adopted the adaptation approach in the formulation of Islamic financial products and services. Although there are Islamic financial instruments that are distinct from the conventional financial instruments, the numbers are still few. In most instances, the Islamic financial products are repackaged along the features of the conventional financial products, while eliminating the elements that are not in-compliance with the Shariah. While this adaptation can continue, the downside risk is that Islamic financial instruments will always have to “catch-up” with the pace of product development in the conventional system. Efforts should therefore be intensified to develop new financial products that embodied the virtues of Islamic banking. This would evolve Islamic financial instruments into distinct, innovative and cutting-edge products.

Zeti Akhtar Aziz: Legal issues in the Islamic financial services industry Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 4th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry, Kuala Lumpur, 28 September 2009. *  *  *  It is my great pleasure to speak at this 4th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry that has brought together so many international experts and industry practitioners to discuss legal issues in Islamic Finance. Such dialogue is important to achieving a common understanding and solutions to issues in Islamic finance, thus contributing to its overall development. Islamic finance has continued to expand and demonstrate its resilience in the current more challenging international financial environment. This advancement has been in terms of the increased range of Islamic financial products and services, the development of the Islamic financial infrastructure and institutions, the greater maturity of the Islamic financial markets and the more comprehensive supporting legal and regulatory framework. More recently, the international dimension of Islamic finance has gained significance with the move to further liberalise domestic Islamic financial system and the strengthening of the international Islamic financial architecture. In Malaysia, Islamic banking assets at the end of the second quarter of this year, now constitutes close to 19% of total banking assets. Total financing now amounts to RM118 billion and accounts for 20.1% of the total financing portfolio of the banking industry. Net nonperforming financing remains low at 2.4%.