zeti akhtar aziz : the challenge for a global islamic capital market – strategic developments in malaysia keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the sukuk summit 2007, " the challenge for a global islamic capital market – strategic developments in malaysia ", london, 20 june 2007. * * * ladies and gentlemen, distinguished guests. it gives me great pleasure to be here in london to speak at this landmark sukuk summit. the islamic bond market – the sukuk market – represents a key component of the islamic financial system. this recent decade has seen the accelerated development of this market and its significant role in strengthening the evolution of islamic finance. the global development of this market is particularly important in this more challenging financial and economic environment. it has contributed to enhancing the effectiveness and efficiency of the mobilisation and allocation of funds within national financial systems and in the international financial system. this development is also evidenced by the level of innovation and sophistication of the products and services being offered by the islamic financial institutions. the encouraging development of the islamic bonds market has also had an important role in enhancing the linkages between financial markets as it facilitates cross - border flows in the international financial system. the sukuk market as an important source of financing for large scale investment projects, has a key role in facilitating the economic development process. for investors, it provides greater potential for diversification into new asset classes. my remarks today will focus on the vast potential of the islamic bond market in the economic development process, in its role in ensuring financial stability and its role in promoting greater financial integration in the global financial system. i would also like to take this opportunity to share with you malaysia's experience in the development of this market. the malaysian sukuk market has now evolved into one of the world's largest islamic bond market. immense role of sukuk market in the economic development the financing requirements for economic development are immense. the bond market is key to meeting these funding needs for both the public and private sectors. this is particularly important for emerging market economies. in the middle east and in asia, two of the fastest growing regions in the global economy are taking place following privatisation and implementation of infrastructure projects. asia alone will be spending an estimated usd1 trillion on infrastructure over the next five years, while infrastructure requirements in the middle east are estimated to be usd500 billion over the same period. the challenge is to

and the world bank. the issuance was made possible following the liberalisation of the foreign exchange administration rules to facilitate multilateral development banks, multilateral financial institutions and multinational corporations to raise ringgit - denominated bonds in the malaysian capital market. at the end of 2005, shariah - compliant private debt securities comprised 40 % of the outstanding private debt securities issue of rm281 billion. 11. other major developments that took place in the second phase include the offering of islamic banking products and services by the conventional banking institutions on a window basis, the establishment of external credit rating agencies such as the rating agency malaysia ( ram ) and malaysian rating corporation berhad ( marc ) and the establishment of the development financial institutions and a national mortgage corporation, that is, cagamas berhad, both also offering islamic financial products. 12. the third phase of the development involves a review of the existing'window'institutional structure of the banks to create an enabling structure that can assimilate future developments in the islamic financial regulatory infrastructure over the longer term. arising from this review, a new institutional structure known as'islamic subsidiary'was introduced in 2004. with this development, the malaysian islamic financial system has evolved into a strong and comprehensive islamic financial system. 13. the comprehensive islamic financial industry in malaysia is also well supported by a conducive legal and shariah framework that began more than 20 years ago. in terms of the legal infrastructure, dedicated legislations namely the islamic banking act 1983 and takaful act 1984, were enacted to govern the conduct of the islamic banking institutions and takaful operators respectively. a dedicated high court judge has also been assigned to preside over cases relating to islamic banking and finance, complementing the mediation, arbitration and other dispute resolution mechanism already in existence for the islamic financial system. 14. great emphasis has also been given to enhance the shariah framework in malaysia. the shariah advisory council in bank negara malaysia is recognised as a sole authority on all shariah matters pertaining to islamic banking and finance. at the company level, it is a legal requirement for islamic banking and takaful operators to establish their own shariah committees as part of internal governance in order to ensure compliance with the shariah. the second focus area is that there must be efforts to have structured human talent development in the area of islamic finance. 15. the essence of a takaful system lies in the relationship between the participants and the