rasheed mohammed al maraj : towards the next phase of growth for islamic banking and finance – a new paradigm for asia and the middle east opening remarks by he rasheed mohammed al maraj, governor of the central bank of bahrain, at the 1st annual world islamic banking conference : asia summit 2010, singapore, 14 june 2010. * * * your excellencies, ladies and gentlemen : i should like to thank his excellency minister lim for his kind words of introduction and his excellency heng swee keat, managing director of the monetary authority of singapore for his kind invitation to participate in this landmark event. the world islamic banking conference has become an established part of the calendar in bahrain. last year ’ s conference was the 16th to be held in the kingdom. 2009 also saw the wibc broaden its scope with its first european summit which was held in london. the present summit, the first of its kind to be held in asia, is evidence of the growing geographical scope of islamic finance which has emerged from being a niche industry to one that has moved into the financial mainstream. the choice of singapore as the host for the wibc ’ s first asian summit marks a further step in the globalization of islamic finance. singapore ’ s historical role as a bridge in the trade routes linking arabia, south asia and south east asia make it an appropriate venue for such a summit. moreover, with its strong infrastructure and reputation for sound and transparent regulation i am sure singapore will have an increasingly important role to play in the future development of islamic finance. the theme of this session is the next phase of growth for islamic banking and finance. the current phase has certainly been very impressive. from its beginnings a little over 30 years ago, islamic finance has grown to become an industry – according to some estimates – which amounts to one trillion dollars in assets. retail banking has been a particularly strong driver of the industry ’ s growth. interest in islamic finance has spread from the middle east and south east asia to europe, russia, the central asian republics, china, and africa. islamic finance is now a genuinely global phenomenon. in bahrain we have seen a similar pattern of strong growth. since first licensing bahrain islamic bank in 1978 the sector has grown dramatically. by the year 2000 the assets of the islamic banks had reached two billion dollars. last year they stood at 26 billion dollars. the market share of islamic banks has increased from 1. 8 percent of total banking assets to over 11 percent in the same period

ways of diversifying its risks and of reducing its reliance on real estate backed assets. finally, on the subject of regulation, it is important that we fully incorporate the lessons of the global financial crisis into regulatory frameworks that apply to islamic financial institutions. although some people in the industry believe that it escaped relatively unscathed from the global financial crisis, and therefore has nothing to learn from the recent experience of the conventional industry, i do not share this point of view. although the islamic financial industry was relatively insulated from the first round effects of the crisis because it did not invest in “ toxic ” structured financial products, it has not been able to avoid the second round effects. these have included sharply reduced liquidity in all markets, and the effect of the global economic downturn on the credit - worthiness of all borrowers, including those who are customers of islamic financial institutions. the principles of sound finance – do not concentrate risk, do not rely on collateral with unrealistic valuations – apply equally to islamic institutions as to conventional ones. the current prudential framework that applies to islamic financial institutions is based closely on that developed for conventional ones. although adjustments have been made to reflect the special nature of islamic financial institutions, the basic framework is similar to that of the basel ii capital adequacy standards and other prudential rules that the basel committee has developed over the years. in consequence, as the international standard setting bodies develop new prudential standards that reflect the lessons of the crisis we need to be ready to revise the prudential framework for islamic financial institutions accordingly. we will need to adapt the new capital adequacy and liquidity standards for conventional institutions to reflect the specific circumstances of the islamic financial industry. in conclusion, it should be clear that there is a great deal of work to be done to ensure that the foundations of the islamic financial industry are sufficiently strong to support the very much bigger structure that now stands upon them. even so, i strongly believe that if we can ensure that the foundations are sufficiently robust, the islamic financial industry has a great and profitable future ahead of it. thank you for your attention.