rasheed mohammed al maraj : business models in islamic finance – challenges and opportunities keynote address by he rasheed mohammed al maraj, governor of the central bank of bahrain, at the ifsb seminar on business models in islamic finance, manama, 3 october 2010. * * * your excellencies, ladies and gentlemen : it gives me great pleasure to be here this evening and to have the opportunity to contribute a few thoughts to the important and timely seminar on business models in islamic finance. i am sure that the morning session provoked many lively debates as the issues considered are of fundamental importance to the future of the islamic financial industry. as a major centre of islamic finance, bahrain wishes to see the industry move from strength to strength. however, this means on occasion being willing to pose some challenging questions for the industry to answer. we are all aware of the great potential that exists in the islamic finance field. following the global financial crisis there has been a resurgence of interest in the islamic finance model. some consultants are predicting that the size of the industry, currently estimated at around one trillion us dollars, could double within a decade. these are exciting predictions, but like all predictions they need to be treated with a degree of caution. as the health warnings on investment products constantly remind us, past performance is not necessarily a guide for the future. as a result, projections of spectacular future growth of the industry which rely on extrapolating the growth trends of the last five or ten years may not be the best guide to the future. the industry will only realise the predicted growth trends if it can properly address some fundamental issues, central to which are the business models of islamic financial institutions. the rapid growth in the industry in the last decade has meant that few sharia - compliant financial institutions have been able to achieve significant economies of scale. many remain comparatively small and focused on niche markets. the result is that we have an industry that comprises many small scale firms engaged in very similar activities and with comparatively high concentrations of risk. as i have said several times in the past, for the long - term health of the industry it is important to generate greater scale and diversity. diversification of the industry needs to occur over several different dimensions. in the first place, diversification is needed of the industry ’ s exposure to particular economic and industry sectors, such as real estate. many islamic financial institutions have built up a comparatively high exposure to the real estate sector. in part, this is the consequence of the requirement for

island countries, aims to plug a market gap and address a persistent development challenge by developing, piloting and scaling market - based parametric insurance solutions. acknowledge pfip ’ s work i wish to acknowledge with sincere gratitude, the commitment and ongoing assistance of the pacific financial inclusion programme ( pfip ), jointly implemented by the united nations capital development fund ( uncdf ) and the united nations development programme ( undp ) to our 1 / 2 bis central bankers'speeches country and to the region that has enabled us to be at the forefront of significant developments in financial inclusion. the financial and technical assistance by pfip has continued to strengthen the platform we have for financial inclusion, innovative insurance solutions, capacity building and knowledge sharing. i am pleased to highlight that our collaboration with the pfip was established in 2009 after which fiji ’ s first national financial inclusion strategy was also adopted. since then, our collaborative approach, with the set - up of the national financial inclusion taskforce and its four working groups, has worked well for us in providing a platform for effective collaboration between all stakeholders. over the years, we have partnered with pfip on a number of initiatives including the piloting and launch of the bundled micro insurance product with the active participation of the private sector, which has resulted in more than doubling of the insurance penetration rate in fiji, in the past three years. conclusion i wish to also convey my gratitude to the governments of new zealand and australia for their financial support and collaboration with pfip for this initiative. finally, i would like to congratulate uncdf, undp and the un university on the launch of this new programme today. the reserve bank of fiji fully supports this initiative, as it aims to fulfil a long - pending need and aspiration of fiji and our neighboring pacific countries, a region prone to natural disasters which has long lasting impacts on our economic growth. we look forward to continued collaboration under the newly launched pica programme and sharing the many benefits that the programme will bring to our pacific region. vinaka. 2 / 2 bis central bankers'speeches