rasheed mohammed al maraj : developing the global islamic financial markets speech by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the 2nd international islamic financial markets conference, manama, 18 june 2007. * * * your excellencies, distinguished guests, ladies and gentlemen – good morning. it is a great pleasure for me to welcome you all today, and to help inaugurate the start of this important event, the 2nd international islamic financial markets conference, here in bahrain. i should like to take this opportunity to express my own personal appreciation for the distinguished panel of speakers. i should also like to commend the iifm, and the islamic research and training institute, for putting together a stimulating programme of topics for the next two days, and for their active support of the development of the islamic finance industry. thanks are also due to the many corporate sponsors of this event, for making this event possible, and to the many attendees, whose participation is also essential to the success of such events. the theme of this conference – “ developing the global islamic financial markets ” – is particularly pertinent. the islamic finance sector continues to demonstrate strong growth, and higher levels of market penetration. it is also fast internationalizing. but it has also reached a stage where it faces some interesting challenges, if it is to really take off as a major component of global financial market activities. these challenges revolve around the continuing need to achieve greater alignment and convergence, without which the vision of deep and liquid global islamic financial markets risks being compromised. by greater alignment and convergence, i am referring specifically to the need for further progress in terms of aligning the accounting standards and prudential regulations applied to islamic finance, as well as the development of standardized instruments and market practices. greater harmonization in these areas is critical, in my view, in order to help sustain the rapid growth and internationalization of islamic finance. to state the obvious, such differences create additional costs for internationally - active firms and competitive distortions, as well as reduce transparency for investors and counter - parties. of course, this is a challenge facing conventional finance as well. but the relative newness of modern - day islamic finance means that the disparities in approaches in these areas are somewhat greater in this industry. this issue has already been widely aired, and efforts are of course being made to narrow these differences – more on this in a moment. but broadly speaking further progress

that corresponds to international best standards to facilitate further growth and development of this industry. as such, these standards were incorporated into our prudential regulations that were issued from 2001 onwards. as a result, bahrain became the first country in the region to develop and implement regulations specific to the islamic banking industry. the central bank of bahrain also pioneered the issuance of sukuk ( islamic bonds ) in 2001 and since a rolling programme of monthly issuance of the short - term sukuk al - salam was put in place. later that year, we started issuing medium and long term ijara ( leasing ) sukuk. among new developments that the cbb expects to bring to market is an islamic sell and buy back agreement ( repo ). the islamic repurchase agreement, which is in an advanced stage of development, will enable the simultaneous sale and repurchase at a future date of cbb ’ s ijara sukuk. this product will enable financial institutions to liquidate the government sukuk for a short term in order to meet their liquidity needs. in its endeavours to create more opportunities and investment alternatives for islamic financial institutions, the cbb has also entered into strategic agreements with london metal exchange ( lme ) and the tokyo commodity exchange ( tocom ) to facilitate trading by islamic financial institutions in international markets. to facilitate these agreements, the cbb has asked the international islamic financial market ( iifm ) to develop contracts and documents that could be used by islamic financial institutions for conducting transactions through commodity murabahas. and i understand that a significant progress has been achieved towards this goal. the cbb has also worked with the islamic development bank and other stakeholders to create various support institutions, necessary for the healthy development of the sector. as a result, bahrain currently hosts 4 major islamic supporting institutions, namely : • the accounting and auditing organisation for islamic financial institutions ( aaoifi ), • the international islamic financial market ( iifm ), • the islamic international rating agency ( iira ), • the council for islamic banks and financial institutions ( cibafi ), the cbb is also cognizant of the need for skilled professionals for the long term development of the islamic banking industry. bahrain institute for banking finance offers a wide range of diploma programmes and short courses in the area of islamic banking and takaful. other recent developments have included the establishment of a special waqf fund in 2006 to finance and publish research