This is to ensure that the Islamic financial institutions have the capacity to manage the risks and that the regulatory authorities have the necessary instruments at its disposal to respond to any destablising implications. Emergence of new set of challenges The enhanced international dimension of Islamic finance has thus brought about a new set of challenges. The emergence of more diverse Islamic financial institutions and the expended development of Islamic financial markets have intensified the development of sophisticated Islamic banking, takaful and capital market intermediaries. This has also resulted in the creation of sophisticated and complex structured financial instruments including hybrids of debt-equity structures. The increased competition has not only intensified the pace of innovation in products and services, but also of the operational processes and delivery channels. These developments have contributed to the increasing complexity of the risks profiles of Islamic financial transactions. Global strategic initiatives Recognizing the importance of ensuring financial resilience of the Islamic financial services industry in this more challenging environment, collaborative international efforts have been undertaken. Spearheading the strategic development of the industry is the ten-year Master Plan for the development of the global Islamic financial industry, a joint initiative by the Islamic Development Bank (IDB) and the IFSB. This strategic initiative provides a blueprint for the orderly development of Islamic financial system across jurisdictions to achieve the common goal of a vibrant, efficient and progressive Islamic financial services industry.

This blueprint also outlines the broad strategies for the development of the key components of the various parts of the Islamic financial sector, including the guide for determining the best options for the different stages of development of the Islamic financial system so as to ensure that it would contribute to the growth and development of the economy and also become an integral component of the international financial system. Of importance is that the master plan not only represents a blueprint for the development of a cohesive and a comprehensive Islamic financial system but also it promotes increased understanding and appreciation for those that wish to participate in the Islamic financial system, including providing information on the expected level of achievements that are required. Another important global initiative in Islamic finance already mentioned is the promulgation of the international prudential and supervisory standards by the IFSB. The IFSB has fast-  2  BIS Review 59/2008  tracked the development of these standards to address the unique and peculiar characteristic of risks of Islamic financial contracts. Fundamental to the implementation of the standards is the strengthening of the risk management capabilities of the financial institutions. In addition, the implementation of these standards needs to be complemented by the continuous surveillance so as to ensure the early identification of the new emerging risks and to ensure that the institutions undertake to manage the risks. Resilience reinforced by the intrinsic features of Islamic finance The intrinsic features of Islamic finance also contribute to its overall resilience.