BIS central bankers’ speeches  1  petrochemical supplier to China’s textile industry, and China’s exports to the GCC are estimated to be growing by 30% annually.2 Second, financial flows between the two regions are increasing significantly. With the rapid accumulation of foreign reserves from the unprecedented oil windfall in recent years, GCC countries are looking to rebalance their portfolio of foreign investments with a greater allocation to Asia. McKinsey observed that over the period of 2002–2006, about 11% of GCC’s capital outflows were to Asia. They estimated that this share could nearly double to 20% by 2020. However, Asia in turn is also investing into the Gulf, particularly in infrastructure projects in the GCC. There is now rising FDI from China and India in sectors such as construction, tourism, telecommunications, software and engineering services, garments, chemical products, and food.3 Third, there are now increased numbers of financial intermediaries to facilitate cross-border financial transactions between the two regions. Major Middle East Islamic banks have established operations in Malaysia. Leading banks from the GCC are now using Singapore as a base for expanding into East Asia and to facilitate Asian business expansion into the Middle East. Malaysian and Singapore banks are in the Middle East to seek business opportunities. Together, the presence of all these active players makes for a vibrant Islamic Finance ecosystem in Singapore. Cross-border Islamic transactions set to take off Going forward, in the next phase of growth, I am optimistic that we will see greater proliferation of cross border Islamic transactions.

The Islamic Financial Services Board (IFSB) estimated that assets of the global Islamic financial services industry grew by 20.4% year-on-year to reach an estimated USD1.6 trillion as at end 2012.1 Last year also saw a record volume of sukuk issuances globally, with sukuk issuance from more countries, and of larger size and longer tenor. Key financial centres have continued to facilitate the development of Islamic finance within their jurisdictions. Singapore has made adjustments to our regulatory and tax regime to allow for the growth of Islamic finance since 2004. Hong Kong has recently amended its tax regulations to allow for issuance of sukuk, while the UK recently established an industry task force to facilitate further development of Islamic finance. Going forward, the broadening and deepening of economic and financial ties between Asia and the Middle East, the two major centres for Islamic finance, will also provide further impetus for future growth of Islamic finance globally. Connectivity between Asia and the Middle East There are three important observations to be made on the growing connectivity between Asia and the Middle East. First, the economic relationship between the two regions has expanded beyond the energyrelated sector. Asia’s demand for energy exports from the Middle East will continue to remain robust as the region expands. However, non-energy trade between the two regions is also growing fast. About 40% of GCC’s non-oil exports are to Asia. Saudi Arabia is the leading  1  Islamic Financial Services Industry Stability Report 2013, Islamic Financial Services Board (IFSB).