Indeed, there was also some apprehension amongst the regulatory authorities, consumers, business communities and investors on the future potential of Islamic finance. Notwithstanding this, over the recent five years, there has been a rapid evolution and expansion of the industry. Today, Islamic finance has been recognised as a viable and competitive form of financial intermediation not only in Muslim countries but also outside the Muslim world and offering a wide range of financial products and services. Licences are being issued to facilitate the establishment of Islamic banks including in the industrial economies in Western jurisdictions. There are also an increasing number of international conventional banking institutions offering Islamic financial products and services through dedicated subsidiaries or branches as well as through window arrangements. In addition, countries that have pockets of Muslim population, in particular, in the Asian region are now exploring the prospect of providing access to Islamic financial services to promote greater inclusion. These trends have not only been in terms of numbers of Islamic financial institutions, but also in terms of institutions with larger size of capital and a more established operational governance framework including risk management. Islamic financial institutions that previously operated only in their own domestic jurisdictions have also begun to venture abroad to tap new growth opportunities in other regions and forge greater cross-border linkages. In the Islamic capital markets, there has been a growing interest in the issuance of Islamic sukuks by both sovereigns and multinational corporations.

The Shariah fund recently established by Malaysia is to support research activities in these areas. This initiative is also to facilitate annual dialogues amongst international Shariah scholars. It is to provide a platform for deliberation on the Shariah compatibility of newly developed Islamic financial instruments and markets. A further pre-requisite is to ensure sufficient availability of liquidity to support the intermediation of funds in the Islamic financial system. The demand for central bank discount window operations is inevitable. Central banks must therefore have sufficient Islamic financial instruments at its disposal to manage the liquidity conditions in the Islamic financial system. This is an area that has yet to be fully developed. In relation to this, Malaysia has developed Islamic monetary instruments that includes both the government and our own Bank Negara Malaysia Islamic financial instruments. We have also a dedicated clearing and settlement mechanism to ensure the smooth functioning of the Islamic financial system. To add to the existing range of Islamic financial instruments, Bank Negara Malaysia will in February this year issue an Ijarah paper to further meet the requirements of Islamic market players in the domestic Islamic money market and also for the purpose of conducting monetary policy. Of equal importance is having in place appropriate regulatory and legal framework to support the development of Islamic financial instruments and markets to ensure investor protection, uphold market integrity in addition to containing systemic risks. The adoption of IFSB standards The third is to ensure the adoption of the IFSB standards.