Malaysia is positioning itself as an Islamic investment gateway to Asia , with a niche in Islamic fund and wealth management. Malaysia has developed a comprehensive Islamic financial system that operates in parallel with the conventional financial system. Of significance, is the inter-connectivity within the system that includes the banking and takaful industries, and the Islamic money and capital markets – a matrix which mutually reinforces the integrity and stability of the Islamic financial system. This is supported by the financial infrastructure, the legal and regulatory framework and the expertise to contribute to the growth of Islamic finance. Malaysia’s achievements in developing the sukuk market Allow me to share the Malaysian experience in developing the sukuk market. The Malaysian Islamic bond market has made significant progress since the first sukuk issue in 1990 by a multinational corporation operating in Malaysia . The development of the market involved initiatives to facilitate an efficient issuance process, the price discovery process, the broadening of the investor base, the establishment of a benchmark yield, the liquidity in the secondary market and the strengthening of the regulatory framework. These initiatives have been reinforced by the legal and Shariah framework and the supporting financial infrastructure including the settlement and bond information system. 2  BIS Review 74/2007  Following the development of a robust and vibrant domestic market, initiatives have now been taken to raise the significance of the international dimension of our Islamic financial system.

The regular engagement that is now taking place among the scholars is already producing this convergence. Similarly for the global acceptance of Islamic finance, the harmonisation of standards and practices is important. Full support has to be accorded to the international standard setting organizations such as Islamic Financial Services Board (IFSB) and to the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) to formulate appropriate standards that would strengthen the Islamic financial system. The IFSB has already formulated the prudential treatment for sukuk investment by the Islamic financial institutions as stipulated in the Capital Adequacy Standards. The IFSB has also undertaken initiatives to strengthen the framework and practices in the Islamic money market. Further work is being undertaken to formulate strategies for strengthening the liquidity management framework and to identify measures to develop benchmark Islamic securities that can help to determine benchmark rate for system-wide application. Global co-operation to develop the Islamic financial markets Indeed, while there remains many challenges that need to be overcome, the overall direction and potential of the global Islamic financial markets are certainly well recognised. Greater engagement and interface between the industry, the scholars, and the authorities will create greater awareness, understanding and appreciation of the issues and the direction for its resolution. This will provide an environment in which the full potential of Islamic finance can be realised. This is indeed a global challenge and it will be the cumulative efforts of the scholars, industry and authorities that will produce the best outcome.