##s for if which are complementary to conventional banking system but which are tailored to capture the different types of risks associated with if, ( iii ) recognizing that if offers an opportunity to diversify financial system to more equity based and better risk sharing instruments than offered by conventional system thereby helping the overall financial system to evolve in a more balanced way, and ( iv ) better understand and appreciate the richness of if which advocates a different liability and asset approach that once effectively acknowledged and applied will offer wide range of opportunities for financial innovation key to the further development and diversification of overall financial system. it is the recognition and implementation of the above goals and objectives that will the lay foundation for an effective financial system. i will now dwell on some of the key preconditions which are critical for laying the foundation for an effective if system. first, it has to be recognized that depending on their circumstances, regulators have adopted varying approaches to develop if system. at this stage, it is too early to pre - judge which approach and model will be effective but success would be contingent on how effectively these institutions are nurtured and supervised. in some jurisdictions regulators have allowed dual systems whereby it issues some additional policies and regulations for ifis over and above the prudential regulatory framework for conventional banks. within this category there are variations with regard to role of regulator in shariah compliance. some countries have declared the entire financial system to be islamic and in others no distinction is made between islamic or conventional financial systems, and the decision to establish islamic bank is with the owners, e. g. saudi arabia and uae. as distinct from these, there is now a wave across developed financial systems, such as u. k and singapore, to introduce specific legislation and regulations to facilitate if transactions. depending on regulators ’ adopted policy stance, approaches to issuance of licensing and role of regulator in shariah compliance varies significantly. for instance, some regulators issue standard form of banking license ( e. g. saudi arabia ) for both islamic and conventional institutions, while others issue separate islamic banking licenses ( e. g. malaysia ). when regulators apply the same criteria and due diligence for licensing both ifis and conventional institutions, they strengthen the competitive forces. use of a separate licensing criterion should be applied carefully ; because relatively lax criterion for ifis will lower industry standards and result in a protected non - competitive class of institutions. second, for long term sustainability and confidence of if sector, it is critical that clients and islamic

diversify products and markets. 7. my own personal experience at the bank the uncertainty and instability prevailing in the global economic and financial environment have kept me on my toes. it was a path full of challenges that confronted me, a path strewn with obstacles where i sometimes stumbled and where i found myself, like many fellow - governors elsewhere, regularly attacked, sometimes ridiculed, and even scorned. but i always emerged, often bruised, but more determined than ever, motivated by the unchanging desire to rise to the constantly - changing challenge, raise the profile of the bank, and transform it into a modern and innovative institution that fulfils its mission confidently and efficiently for the sustainable development of the mauritian economy. we had our share of achievements, small victories and successes obtained with great satisfaction. 8. the decisions and actions that i took at the bank over the last five years have been directed towards maintaining financial and macroeconomic stability – this, as the global financial crisis revealed, is the most important function of a central bank. this overriding consideration has guided all my decisions and actions. however, given the highly uncertain and unstable global environment, flexibility and promptness in action turned out to be key elements in our decision - making. i saw the need to bring some key reforms to the organisational structure of the bank. for operational efficiency, the bank was restructured into a more flexible institution. new divisions were created to monitor areas that i had foreseen would be critical in the years to come, among which the financial stability unit to monitor and assess the risks to financial stability and associated macro - prudential policy. our strategies have borne fruit and the bank ’ s contribution to financial and macroeconomic stability has been recognised locally and internationally. 9. let me sketch the broad outlines of the bank ’ s policies and actions during the past five years, which flow from this overriding consideration. 10. monetary policy at the very start of my tenure as governor, i set out to remedy what was, to my mind, a major flaw in our approach to monetary policy decision - making. although it had been three years since the new bank of mauritius act had been enacted, with explicit provision for the creation of a monetary policy committee ( mpc ), the interest - rate decision process had remained unchanged. one of my first moves as governor was to establish this committee, which was officially launched in april 2007. soon after the first meeting, i proposed that amendments be brought to