ISRA focuses on applied research in Shariah and Islamic finance, and provides the avenue for greater engagement between industry players and scholars. In addition, the tax neutrality treatment, has paved the way for the introduction of innovative products such as Ijarah Munthahiah Bithamleek (leasing ending with ownership) and Musharakah Mutanaqisah (diminishing partnership) in home financing, and currency option using the concept of Hamish Jiddiyah (security deposit) and Tawarruq (monetisation). Secondly , foreign Islamic subsidiaries have an important role in enhancing the international linkages of the Islamic finance industry regionally and internationally. Reinforced by a well developed legal, regulatory and Shariah framework and with three decades of experience, our Islamic financial system offers a unique platform as a meeting place between those that require funds and those with surplus funds. Malaysia has the full complement of the financial infrastructure, products and institutions. This is reinforced by the adoption of international regulatory best practices and liberal foreign exchange administration rules. This environment has encouraged the issuance of ringgit denominated sukuk by multilateral institutions and foreign multinational corporations in our market. It has also increased participation of investors in our Islamic financial markets. In a number of the sukuk issuances, the foreign subscribers (other than from Asian region) represent more than two thirds of total  2  BIS Review 146/2008  subscribers. Given the investment opportunities in the East Asian region, there are significant potential business activities, especially in the Asia-Pacific region.

Against the background that I have portrayed in my previous comments, it is clear that central banks have a genuine interest in improving their understanding of how the objectives of financial integration and financial stability, or even macroeconomic stability, interact with each other. I already mentioned that this is an area which is under-researched. Two years ago, the Network on Capital Markets and Financial Integration in Europe identified this gap and decided to include the relationship between financial integration and financial stability in a list of the network’s priority areas, posing a series of stimulating questions aimed at providing some guidance for researchers’ efforts. I think it is useful to recall the five questions posed by the Network: -  First, how can financial regulations be designed so as to be conducive to integration while still ensuring financial stability? -  Secondly, what are the main links between financial integration and contagion? -  Thirdly, what are the mechanisms that can trigger contagion and financial fragility? BIS Review 118/2006  3  -  Fourth, how does competition in the financial services industry affect the ability of the financial system to withstand shocks? -  And finally, how and to what extent do financial crises affect economic activity? As you will have realised, there is an almost perfect correlation between these questions and the main topics of the different papers that make up the excellent and well-balanced programme that the organisers have put together for this Conference.