While affected by some market instability and uncertainties, it has not, however, undermined the development of the global Islamic financial system that has now become an increasingly integral component of the international financial system. The approach to building a sustainable and progressive domestic Islamic financial system involves the creation of the key components comprising the Islamic banking industry, Islamic financial markets, the Islamic insurance or takaful market, and fund management industry given the strong linkages, inter-dependence and synergies among these components in the system. In addition, to the financial intermediaries and fund managers, other institutional players such as brokers, specialists and corporate treasurers also have important roles to play. Another area of focus is the growth of non-bank Islamic Financial institutions. In Malaysia, the first included Tabung Haji, the Pilgrim Fund Board. Other components include institutions such as waqaf, corporate zakat, investment trusts, mutual funds and inheritance management. This is part of wealth management that will become more significant as the domestic economy enters into its next level of development and as savings across borders becomes more institutionalized. This will become an important source of funding for productive investment, in particular for large-scale investments. New forms of financial structures may be developed for this purpose. In promoting Islamic finance in the Labuan offshore financial center, emphasis is being given to several of these areas, in particular, to promote the fund management industry including via the Labuan International Financial Exchange (LFX). Labuan will also be promoted as a center for waqaf administration.

In this regard, the IFSB has already made progress in developing the prudential standards on the capital adequacy and risk management framework, and has commenced work on developing standards on corporate governance. Appropriate accounting standards have also been put in place to reflect the true and fair value of banking operations that would lead to greater accountability and responsibility on the part of financial institutions. While the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has made a significant contribution in formulating and issuing accounting and auditing standards for Islamic financial institutions, efforts need to be intensified to promote of the adoption of these standards. The International Islamic Financial Market (IIFM) further provides the environment that will encourage active participation by both Islamic and non-Islamic financial institutions in the secondary market for Islamic financial instruments. Several global sovereign sukuks have been issued in the international market that has attracted wide interest, both by Muslim and non-Muslim investors. The next phase in this development is the raising of funds from this market by multinational corporations and multilateral institutions. As the volume increases, it would strengthen the inter-linkages and integration amongst the Islamic financial centres. In addition to structuring a variety of attractive off-the-shelf instruments, efforts need to be intensified to create a benchmark curve for future issues. With a well-developed system, the trading of instruments would encourage the free flow of capital movements and would in turn facilitate greater Islamic fund management activities.