high levels of liquidity has meant that islamic banks have not needed to fight for funding or ideas. newer entrants to the industry have merely tended to copy the strategies they see being successfully pursued by their more established rivals. if i may say so, there is a high degree of “ cloning ” of business models. as a result, a very high percentage of islamic banks have a strategy that is heavily weighted towards real estate and asset finance. they tend to be project - driven and do not have a steady source of “ bread and butter ” revenue to tide them over any downturns in economic activity. this contrasts with conventional banks with their extensive loan books, overdraft and credit card facilities which provide steady revenue to cover their overheads even in today ’ s challenging markets. the “ cloning ” of business models leads to financial institutions becoming exposed to the same economic and industrial sectors. the islamic banking sector as a whole is highly exposed to the property sector – real estate, commercial property and construction – and as events in the advanced markets have recently reminded us, this sector can and does experience significant cycles of activity. the asset - based business models favoured by many islamic banks have not been tested in a downturn. we need to remember that a business model which looks robust in conditions of rising asset values and abundant liquidity may not be so when the economic environment changes. the industry needs to respond to these challenges by developing a greater diversity of business models, more diverse and stable income sources, and more rigorous risk management and stress testing techniques to assess its preparedness to deal with any downturn in economic activity. as a central banker i am inevitably preoccupied by risk, especially when it could potentially impact on a significant sector of the financial industry. however, the challenges that i have highlighted are very much the result of the industry ’ s recent success. we all share of the aim of ensuring that the industry remains successful, and this is why it is so important that we recognize and address these challenges.

rasheed mohammed al maraj : the corporate governance code of the kingdom of bahrain welcome address by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the launch of the proposed new corporate governance code, manama, 16 march 2010. * * * distinguished guests, ladies and gentlemen : it gives me great pleasure to be with you here today and to take part in the launch of the proposed new corporate governance code for all public companies in the kingdom of bahrain. although this initiative has been led by the ministry of industry and commerce, the central bank has been involved at all stages in the development of the new code and we are strong supporters of it. we will be working with the financial sector and listed companies on the implementation of both the spirit and letter of the new code. although high standards of corporate governance are essential for all publicly listed companies, they are especially important for firms in the financial sector. if i may refer back to the speech that i gave at the world islamic banking conference in december of last year, financial institutions – and banks in particular – are not like other corporations where directors need to consider only the interests of shareholders. financial institutions have a special position of trust in that they are charged with looking after other people ’ s money. this means that the interests of creditors, depositors, policy holders, and clients need to have equal weight with those of shareholders and the decisions taken by the board of directors. recognition of the directors ’ fiduciary responsibilities is, therefore, an essential element of corporate governance for banks and other financial institutions. unfortunately, the global financial crisis has provided many illustrations of failures of corporate governance. there is common pattern behind many of the failed financial institutions of the last 18 months. in many cases, the chief executive was a dominant figure who made sure that he alone took all important decisions. there was no culture of open debate and discussion within the senior management of these institutions, with the result that other members of the board of directors did not feel able to challenge the chief executive ’ s decisions. many bank boards lacked banking experts. individuals were recruited to the board of banks for their connections rather than for their knowledge of the banking industry and their ability to ask the right questions. in the case of many failed banks the standards of corporate governance fell far short of what should have been expected. it was the board of directors that should have challenged the aggressive growth strategies pursued by some chief executives. it was the board of directors