The Master Plan would allow countries the option to evolve the financial system sequentially, or alternatively the option to accelerate the process of development by providing countries the opportunity to develop the institutions and supporting infrastructure simultaneously. Significance of banking system At the outset, due attention needs to be given to promoting the development of a comprehensive Islamic financial system, involving the development of the key structural components of the system, comprising the Islamic banking industry, the takaful industry, the non-bank financial institutions, and the Islamic interbank and capital markets. The comprehensiveness of the system will allow for a more balanced allocation of financial and economic resources within an economy and ensure greater diversification of risks within the Islamic financial system. This enhances the resilience and robustness of the Islamic financial system to withstand financial shocks and contributes to the overall stability of the Islamic financial system. The respective components of the Islamic financial system are also highly integrated and inter-dependent. A more diversified Islamic financial infrastructure will contribute to the more efficient functioning of the overall financial system. Given its roles in the intermediation process and payments system, the Islamic banking system will continue to be at the core of the Islamic financial system. A well functioning and efficient banking system is vital for achieving robust economic performance. As financial intermediaries, banks are entrusted to safeguard their deposits and preserve the efficiency in the manner the funds are mobilised, while vigilantly channeling these savings to productive investments.

The move enhanced further the vibrancy of the Islamic interbank market. The efficiency of the Islamic interbank market is enhanced by the Real Time Gross Settlement System (RENTAS) and the Fully Automated System for Tendering (FAST). RENTAS facilitates larger value interbank funds transfers and scriptless securities while FAST facilitates the tendering process for Islamic securities including government securities, commercial papers and private debt securities. Funds are raised to finance long-term infrastructure and development projects through the issuance of Islamic private debt securities. Recognising the importance of the capital market, Malaysia initiated the development of a private Islamic financial securities market in the early nineties, about six years after the establishment of the Islamic bank, with the issuance of the first Islamic financial instrument. Subsequently, more instruments were issued and these created an investment environment conducive for investors, including banks. The introduction of the Islamic capital market has reduced the over-dependence on the Islamic banking system for long-term financing and allows Islamic banking institutions to diversify part of the risks emanating from asset and liability mismatches. The existence of the Islamic capital market plays an important role in reducing a potential source of financial vulnerabilities and enhances the robustness and resilience of the Islamic financial system, leading to greater financial stability. A significant development in the domestic Islamic financial market was the recent issuance of ringgitdenominated Islamic debt securities by two multilateral financial institutions. This has heightened confidence in the Malaysian Islamic financial market.