This calls for a closer examination of the fundamental character of modern finance – where ethical and responsible finance that is strongly anchored to the real economy has a more significant role. My remarks today will begin with some observations on the evolution of financial systems and the trends that have increased the vulnerability to financial crises, highlighting some of the key issues that have contributed to the breakdown of financial systems. Finally, I would like to take this opportunity to discuss some possibilities for the future of finance. Financial systems, then and now The development of finance has historically been a positive and inseparable part of world economic growth and prosperity. There is a large body of research that points to the significant benefits of financial development, recognising the economic value in financial intermediation that mobilises savings, catalyses investment, enables an efficient allocation of resources, reduces information asymmetries, and facilitates the management of risks. The transformative role of finance in economic progress is evident throughout history. The intrinsic power of finance essentially lies in its linkage to the real economy – that finance exists to serve the real economy. As has been described, “where enterprise leads, finance follows”. This can be seen in the early financial innovation and growth of financial systems around the world. In the 17th century in the Netherlands, the establishment of the Amsterdam Exchange Bank and the availability of instruments such as bills of exchange contributed towards financing their extensive domestic and international trade.

Firstly and most critically, future finance needs to have stronger links to the real economy by effectively having an intermediation role that is in the service to society. Financial systems have to be both value-adding and value-based – value-adding, in that they contribute meaningfully by intermediating and facilitating real economic activity, and value-based in that they aim to benefit society. Such finance that is value-adding and valuebased is deeply needed in the global economy. Many parts of the world, notably the developing world, require large amounts of funding to address infrastructure development. Financial inclusion also remains an important agenda to uplift the living standards of the marginalised segments of society in our global community. Secondly, a functioning regime practising value-adding and value-based finance needs to be built on a set of universal principles that will create a sustainable model for mainstreaming such positive finance in the global financial system. A regime that is deep-rooted in genuine productive activity that discourages excessive leverage that emphasises transparency, and that strengthens financier-client relationships would cumulatively be a positive force for the global financial system. Indeed, these are some of the core underpinnings of Islamic finance which has already garnered significance in many parts of the world. The central tenet in Islamic finance requires that financial transactions be supported by genuine economic activity, reinforcing the link between finance and value creation and aligning financial innovation to productive economic activity.