Zeti Akhtar Aziz: Potential role of Islamic finance in strengthening the New Silk Road Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at GIFF Investors & Issuers Forum: "Islamic Finance: The New Silk Road", Kuala Lumpur, 28 March 2007. *  *  *  Up until the 14th century, the Silk Road served as a major global conduit between ancient civilizations in the East and West. It created mutual prosperity, encouraged knowledge transfer and enhanced understanding between civilisations through trade, cultural and technological exchange. Now in the 21st century, globalisation and liberalisation, and the emergence of new financial centres and their increased integration have created an environment of flourishing activity reminiscent of the Old Silk Road. Indeed, it suggests that a New Silk Road has emerged. This new route not only carries flows of oil, manufactured goods, and technological innovation, but also flows of direct investment, portfolio capital, private equity and human capital. Previously, silk was one of the main commodities traded on this route. Now, the emergence of Islamic financial products and services has brought together financial services providers across continents to trade on this new route. The emergence of the New Silk Road reflects the increasing and evolving economic and financial relationships and inter-linkages, with Islamic finance well positioned to further facilitate these linkages to offer mutually-reinforcing benefits to those who participate in it. Indeed, the New Silk Road opens up the prospect of exciting opportunities for economic progress and prosperity for us all.

The adoption of Islamic financial principles encourages financing to be primarily adopted as a means to facilitate real underlying economic transactions and not for speculative purposes. There are also clear value propositions in Islamic finance for both investors and issuers from both regions. For investors, Islamic financial products offer portfolio diversification and new investment opportunities as they avail themselves to a new asset class. They also encourage risk management and provides confidence through explicit disclosure and transparency of the roles and responsibilities defined in the contract. For issuers, Islamic finance allows access to a new source of funds and liquidity besides providing, new risk management options and new mechanisms for price discovery. Islamic finance is well positioned to be a vehicle on the New Silk Road, as the enabling supporting infrastructure is already in place. The required regulatory and legal frameworks for Islamic finance have been established, not only in a growing number of countries in both regions but also at the international level through standard-setting bodies such as the International Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Efforts towards the harmonisation of Shariah interpretations and issues concerning mutual recognition are at an advanced stage. The platforms for extending regional linkages and cross-border initiatives, including to the Middle East, are already in place within Asia, where there has been a significant degree of regional financial and economic integration.