In Malaysia, the National Shariah Council on Islamic Banking and Takaful has invited prominent international Shariah scholars to participate in the deliberations as its members. The move is expected to help bridge the gaps in the interpretations of Shariah injunctions in relation to the conduct of Islamic banking business among the Shariah scholars in different parts of the world. Another forum through which the differences in the interpretations is being addressed is regular and continuous dialogue sessions by the scholars. A RM200 million endowment fund has been established by Malaysia to support the role of the international community of Shariah scholars in developing global Islamic banking and finance. The development of a vibrant Islamic banking sector cannot be achieved without the support of appropriate human capital development. Underpinning the success of Islamic banking system is the strengthening of research and intellectual capacity in the sphere of finance and Shariah. The Islamic banking industry needs to be equipped with a new breed of innovators, risk managers, regulators and supervisors who have the right blend of knowledge of finance and the understanding of the Shariah. For this purpose, Malaysia has established the International Centre for Education in Islamic Finance (INCEIF), which will commence operations in March 2006, aimed at developing talents in Islamic finance. INCEIF will offer professional certification programs in Islamic finance and will forge strategic alliances with domestic and foreign institutions of higher education to offer Masters and PhD. programs in Islamic finance in specific areas of specialisation.

Similarly, the liability structure of the Islamic banks is characterized by two distinct categories of deposits: the demand deposits which are not subject to the risk associated with the banking business and for which the principal is guaranteed, and the investment deposits which involve risks and hence, eligible to share the profits earned from the banking business. Given that the returns are not predetermined, profit-sharing depositors of Islamic banking institutions, as the capital provider will have to bear any of the losses. This places a higher degree of fiduciary risk on the Islamic financial institutions in ensuring that the investment deposits funds are managed in the most effective and efficient manner. This is further compounded by competition in managing the liquidity in the system. The profit share distributed needs to be competitive relative to that earned and paid by the conventional banks. This is important to avoid a shift of deposits and to retain the funds in the system. A central feature of the regulatory framework for Islamic financial institutions is financial transparency and disclosure. Market conduct disclosure and customer relationship management form the core of these principles. Addressing the information asymmetry between Islamic banking institutions and the depositors is of vital importance. Under the Mu-da-ra-bah principles, there is a need for disclosure by Islamic financial institutions to investors on how the funds are being managed so as to provide the assurance that the underlying business operations, the risk profile and the risk control mechanisms are in place.