This global resolve is in fact, fundamentally in congruence with, and accentuates the role and relevance of Islamic finance on the global economic stage in this post-crisis era. Islamic finance, through its emphasis for the attainment of socioeconomic goals based on the objectives of Shariah, provides the discipline that enhances the prospect of strengthening the global economy and overall financial stability. The relatively better performance and the sustained momentum of the growth in Islamic finance during this period of global financial turmoil exemplifies its inherent strengths – its emphasis on a strong linkage to productive economic activity which predisposes the economy to financial deepening without the excesses, its emphasis for accountability, disclosure and transparency and its inbuilt checks and balances, all of which underpin Islamic finance as a stable form of financial intermediation that strengthens its prospects as a contributor to economic growth and financial stability. While the amount of funds managed in the Islamic financial system is still only a fraction of the total assets of the international financial system, it represents that portion of financial activities that is truly supported by underlying productive capacity that generates growth of economies across continents. It is this form of financial activities that we would want to encourage, as opposed to the financial flows that are destabilising and not contributing to generating real economic activity.

The report examines the conceptual elements inherent in Islamic finance and their effects on financial stability and considers eight further areas of development in the Islamic financial architecture to enhance its ability to deal with a more challenging future operating environment. This Report completed in April this year aims to support the international efforts towards providing a strong foundation for financial stability in the global financial system. The eight areas for strengthening the financial infrastructure of Islamic finance address the institutional capacity both at the national and international level with the aim of contributing to global financial stability. These building blocks which address the core foundations for the development of Islamic finance include, first, ensuring the effective implementation of the prudential standards; second, the development of systemic liquidity management infrastructure; third, the establishment of strong financial safety nets; fourth, putting in place an effective crisis management and resolution frameworks; fifth, strengthen further the accounting, auditing and disclosure standards; sixth, having an effective macro prudential surveillance in place; seventh, having credible credit rating institutions and processes; and finally eighth, enhancing close international cooperation and coordination among countries including in capacity building and talent development to support efforts at the national level to ensure financial stability. Islamic finance does not exist in isolation and as it becomes an increasingly important component of the global financial system, it will inevitably be impacted by the changing global landscape of financial regulation.