zeti akhtar aziz : fostering linkages in islamic finance opening remarks by dr zeti akhtar aziz, governor of the central bank of malaysia, at the global islamic finance forum 2007 : " fostering linkages in islamic finance ", kuala lumpur, 27 march 2007. * * * bismillahir rahmanir rahim yang amat berhormat dato'seri abdullah badawi, honourable prime minister of malaysia your excellencies, distinguished guests, ladies and gentlemen, it is my very great pleasure and honour to welcome you to this global islamic finance forum ( giff ) 2007, hosted by bank negara malaysia in conjunction with the islamic financial services board ( ifsb ) annual meetings and seminars. allow me to first express my gratitude to the honourable prime minister of malaysia, yang amat berhormat dato'seri abdullah ahmad badawi, for graciously accepting to be with us this afternoon to deliver the keynote address and to officiate this important forum. the significant gathering at this forum, with the theme fostering greater linkages in islamic finance ', is a manifestation of the increasing interest towards evolving the international dimension of islamic finance. indeed, building stronger alliances and greater intermediation inter - linkages forms part of the endeavor to facilitate greater international trade and investment flows. the islamic financial system, comprising the financial institutions, the markets and the financial infrastructure, has demonstrated its viability and robustness as a form of financial intermediation. its growing role in mobilising and channeling the funds to productive investment activities across borders brings two significant benefits to the global economy. firstly, it enhances the potential for higher global growth, while also contributing towards some rebalancing of the global growth. secondly, the strengthened international financial linkages allows for greater potential for the diversification of risks. the increase in the islamic financial products, the growing number of assets classes being offered, the increased cross ownership of assets all have expanded the possibilities for greater diversification of risks and the potential for return. today, islamic finance represents a multi - billion dollar industry which has a presence in many countries and more recently, there has been widening participation by established financial centres. there are now more than 200 islamic financial institutions, some of which are global players, offering an extensive range of shariah compliant products and services to a broad spectrum of consumers and businesses that transcends beyond the muslim world. this global forum has aimed

retail liabilities in their analysis. bis central bankers ’ speeches to maximize the effectiveness of the map framework in europe, a principle that should be heeded is that strong microprudential supervision is a necessary precondition for effective macroprudential policy. indeed, map policy is to a large extent the use of microprudential tools with a macro perspective. it is therefore crucial to coordinate the use of prudential tools for both purposes. as an example, consider the actions that the bank of italy recently undertook with the aim of increasing bank provisioning, in order to improve investor confidence in italian banks. with a macroprudential perspective, in order to avoid procyclicality the bank of italy at the same time asked banks to increase internallygenerated resources by containing costs, disposing of non - strategic assets and aligning dividend policies to their balance - sheet and income strength. these actions should limit the risk that, in a context of weak economic activity and tight credit conditions, the increase in provisioning might lead to a deterioration in the availability of credit to the private sector. 5. conclusions macroprudential policy may play a crucial role in preserving financial stability. but in this new field of policymaking, more than in others, we should keep in mind that no solution is obviously right or wrong. more experience is needed on the functioning of macroprudential authorities and the use of tools. as progress will inevitably follow from a learn - by - doing type of approach, policymakers should not shy away from carefully planned but bold experiments. some countries are already moving in this direction. the signs of overheating that are emerging in some segments of the financial system may soon require appropriate macroprudential measures. policymakers should not repeat the errors made in the run - up to the crisis, when many supervisors turned a blind eye to the imbalances that were building up in their economies. some conceptual steps need to be taken. first, elusion and waterbed effects may hamper the effectiveness of map policies, especially when measures are narrow. a system of tight micro supervision can go a long way towards addressing circumvention. the simultaneous use of complementary macroprudential tools, rather than a single targeted tool, can also help. effective cross - border cooperation is key to fight spillovers. unfortunately, at present centrifugal forces seem to prevail, in europe as elsewhere. second, we need to explore