zamani abdul ghani : growth and development of smea€™s in malaysia opening address by mr zamani abdul ghani, deputy governor of the central bank of malaysia, at the top smi supporter award presentation, held at the credit guarantee corporation malaysia berhad ( cgc ), petaling jaya, selangor, 9 june 2008. * * * bismillahirrahmanirrahim distinguished fellow members of the board of directors of cgc, yang berbahagia datuk wan azhar wan ahmad, managing director of cgc distinguished guests and representatives of financial institutions members of the media ladies and gentlemen assalamualaikum w. b. t. and a very good afternoon on behalf of the board of directors and management of the credit guarantee corporation, ( cgc ), i am pleased to welcome you to this top smi supporter awards presentation ceremony. this occasion is held in conjunction with the cgc's 35th annual general meeting that was successfully concluded just a while ago. i am pleased to note the encouraging representation made here today by fellow members of financial institutions. this signifies the importance that financial institutions attest to this cgc's annual award presentation ceremony. that said, allow me to record our appreciation to all of you for making this ceremony an important event in your calendar. this top smi supporter awards presentation ceremony, as you are all well aware, is an annual occasion. it recognises the active participation by financial institutions in cgc's credit guarantee schemes in particular, and contributions by financial institutions to sme development in general. we firmly believe such efforts should not go unnoticed. collectively, the award recipients and all other financial institutions have helped in making cgc a stronger sme - support institution. this is so as their active participation opened a new window of opportunities not only for the smes but also for the cgc in reaching out to a wider cross section of the sme community throughout the country. in 2007, cgc provided credit guarantees totalling rm4. 6 billion to more than 13, 000 smes through our main schemes, the programmed lending schemes as well as the securitisation of sme loans. there was actually remarkable growth with the number of loans and amount guaranteed growing by 73 % and 53 % respectively. this could be attributable to the strong support given by participating financial institutions that have been robust in serving the sme market in the recent years. i particularly note with interest that the seven

to growth and development. this brings me to the second implication of the changing financial regulatory landscape in respect of preserving financial stability and the broader agenda of effective and efficient financial intermediation, taking into consideration the unique considerations in islamic finance. ladies and gentlemen, a sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and risk taking has been widely cited as part of the root cause of the recent global financial crisis. indeed, the pre - crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. whilst there is general support for the reform measures, there is also concern on the dangers of over - reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. the concern is specifically on the unintended consequences of the regulatory reform. financial stability is not an end in itself ; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. this presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation. a careful assessment needs to be made of the potential medium and longterm effects of the proposed reforms on market structures and behaviour. these considerations are equally relevant in the context of islamic finance. the assessment on the aims and relevance of each of the proposed reform measures needs to take into account the two important considerations in islamic finance ; the need to support sustainable and responsible innovation, and secondly, to leverage on its inbuilt strengths that set islamic finance apart in performing its role in supporting the efficient mobilisation and allocation of resources to generate real economic activities. given the damaging effects of complexity and opacity associated with the recent unfettered innovative activities in the conventional financial markets, it has resulted in a reassessment of the role and benefits of financial innovation. in islamic finance, innovation is key in pushing the frontier of market development to generate the range of products and