National authorities are concerned with the risks of asset inflation and volatility of capital flows. But properly structured, these provide unique opportunities to channel the much-needed capital for growth and development. In this regard, Islamic finance which has its central emphasis on supporting real economic activities in trade, investment and the growth of productive capacities is especially relevant. 12. However, effective intermediation of capital requires focused attention on the management of risks. As I mentioned in my speech at the previous WIBC, many risks – including credit, market, liquidity, operational and reputational risks are common to both conventional and Islamic finance. Overly-optimistic projections of growth, or overconcentration in particular sectors, or mismatches in assets and liabilities can give rise to risks that can damage financial institutions. The crisis serves as a valuable pause from the frenzy of financial activities. This allows us to re-evaluate risk management practices in individual financial institutions, as well as the systemic linkages across institutions, instruments and markets. 13. Central banks and regulators need to cooperate closely so that risk assessments can be shared and common action taken where necessary. The Central Bank of Bahrain (CBB) and MAS have enjoyed very good relations, and have worked to promote Islamic Finance. The CBB is a highly-regarded central bank and integrated financial regulator. I am pleased that the MAS and CBB will be signing a Memorandum of Understanding later today to build on our existing strong relationship to enhance supervisory cooperation and information-sharing. 14.

The IMF has highlighted that global banks and financial institutions have yet to recognize more than half of their total estimated write-downs of $ trillion. So far, growth has been supported by the massive monetary and fiscal stimulus. Indeed, studies of past crises suggest that economic recoveries in the aftermath of financial crises tended to be protracted. Many analysts therefore expect global growth to be slower in the coming years. 5. Against this backdrop, what should be the growth strategies of emerging economies, and what is the role of financial institutions, especially Islamic financial institutions? 6. Even with slower global growth, emerging Asian and Middle Eastern economies are expected to grow at higher rates than advanced economies. There are many positives working in their favour – abundant natural resources and monetary reserves; young and dynamic populations, growing consumer demand, large infrastructural programmes underway in some areas like water, energy, transport, education and healthcare. Generally, balance sheets of corporates and households are in better shape than it was in earlier years. 7. With the growing importance of emerging economies, we will see changes in the patterns of trade and development. There will be stronger “south-south” trade. The old pattern of “flying geese” development in Asian newly-industrialised economies, where developed economies bring in investment and technologies, will give way to a more variegated pattern, where companies in the emerging markets will invest in other markets. We already see many corporates from emerging markets developing disruptive technologies and business models that address market needs in very competitive ways.