Recent examples include the USD500 million Islamic Infrastructure Fund established in 2009 by the Asian Development Bank (ADB) and Islamic Development Bank (IDB) to meet the Shariah-compliant financing needs in the member countries. In addition, the advancements achieved in the sukuk market also provide evidence on the ability of Islamic finance in meeting the requirements of the differentiated demands of the modern economy. The recent issuance of the world’s first offshore RMB sukuk by Khazanah Nasional in Malaysia reflects the growing trend of multi currency sukuk issuances in Asia. Growing at an average annual rate of 40 percent, the global sukuk market has demonstrated its ability to effectively intermediate funds across borders, allocating funds efficiently in the international financial system and fast becoming an important financing and capital raising option. Islamic finance and financial stability An important aspect of the new financial landscape is the increased focus on financial stability. The more market oriented systems with market-based finance activities, the creation of new financial instruments and an increasing number of market participants with global reach, and more interconnected financial systems has expanded the potential for, and channels through which, financial shocks are transmitted to the economy and across borders. Indeed, recent experiences with crises have also shed new insights into the complex web of relationships that exist between sovereign, financial and economic risks, and underscored the critical importance of strengthening the pillars of financial stability that can serve to contain the impact of a crisis.

The fourth principle is creating regulatory framework that promotes agility and innovation while preserving financial stability. Regulators must continually review and ensure that their governing frameworks remain relevant in the context of the fast-changing digital world. Outdated and inflexible laws and regulations need to be amended accordingly. With the advancement of technology, financial innovations usually start off small and scale up quickly. Regulators must therefore keep in mind the concept of proportionality, allowing themselves to be more tolerant towards low-risk financial activities and more scrutinizing towards activities that might pose risks to the financial system. We also need to keep in mind that financial products and activities are expanding across jurisdiction of different agencies. Regulatory framework must shift from entity-based regulations, which have formed the core of our regulatory framework, to activity-based ones. Most importantly, the regulations must be agile and able to adapt to the everchanging environment of the digital world. To give you an example, our regulatory sandbox scheme that was introduced less than two years ago might be too slow and out of sync with market requirements today. In response, we have decided to allow financial institutions to develop their own sandbox and move from the approval concept to registration concept, with a view to reducing time-to-market and increasing flexibility for innovation and investments. We have also amended our regulations governing banks’ IT-related services with the aim to facilitating 4  partnerships between banks and tech companies, and enhancing connectivity between banks and the digital world.