more internationally integrated. this is underpinned by its great potential as a competitive form of financial intermediation. in malaysia, the islamic banking system has evolved into a dynamic, competitive and internationally integrated industry. in this recent five years, the islamic banking industry has continued to record double - digit growth rate of about 20 percent. it is also an important contributor to the strong levels of profitability recorded by the banking groups. in terms of assets, the islamic banking sector now accounts for 12 percent of the total banking system. it is envisaged that by year 2010, the islamic banking industry will constitute 20 percent of the overall banking industry market share. financing extended by the islamic financial institutions to smes has shown an encouraging upward trend, growing at an average annual rate of 34. 2 % for the period 2001 - 2006. as at end - 2006, islamic financing to smes reached rm10 billion, accounting for 9. 6 % of total sme loans outstanding of the banking system. this is a significant increase compared with the amount of islamic financing extended to smes at end - 2000, which was only rm1. 7 billion or 2. 4 % of total sme loans outstanding of the banking system. indeed, there is great potential for islamic financial institutions to play a more significant role in providing greater choice to smes to meet their financing needs. increasingly now, smes from the different sectors require more customised and differentiated financial products and services that accommodate their unique requirements. this reflects the more highly diversified nature of the malaysian economy. islamic financial institutions therefore need to understand these requirements and be able to provide not only new innovative products but also attractive financing packages. in addition, islamic financial institutions need to intensify efforts to create greater awareness amongst the smes on the unique features associated with islamic products and services. enhanced financial literacy on islamic financial products will facilitate the process for smes to make informed and effective decisions on their financial transactions. today's event that marks the establishment of strategic partnership between cgc and the islamic financial institutions augurs well for smes. it provides a platform for the islamic financial institutions to extend greater financing to smes. for cgc, this is an opportunity to expand the scope of its guarantee beneficiaries to include islamic financial institutions. the real beneficiaries would be the smes. on this note, it is my pleasure to once again congratulate cgc and the islamic financial institutions for this initiative to forge this strategic alliance

% of smes are micro enterprises which had limited access to financing from the formal financial system to maintain and expand their businesses. to meet the financing needs of this key segment of the smes, microfinancing has now been established in our financial system. a number of financial institutions are participating in providing fast, flexible and convenient access to financing to individuals and micro enterprises for their business activities. the various measures that have been undertaken have now already yielded positive results. smes today have had greater access to financing, with the banking institutions being the main source of financing. in 2006, rm40 billion in new loans was approved to more than 84, 000 sme accounts. of this, the islamic banking institutions provided rm5 billion in new financing, compared with rm3 billion in 2005. the share of sme loans of the banking institutions has increased from 30 % of total business loans at end - 1999 to 45 % at end - 2006. total sme outstanding loans of the banking institutions have now breached the rm100 billion level in 2006. the credit guarantee corporation is a key institutional arrangement in facilitating greater access to financing by the smes. by providing guarantee to loans obtained by smes, cgc addresses one of the main constraints of smes that is the lack of collateral. bank negara malaysia, as the largest shareholder of cgc, is committed to ensure that cgc is in a position to have an effective role. towards achieving this, rm1 billion was injected into cgc in 2000 to enhance its financial capacity to provide guarantees. in 2005, a process to transform cgc was initiated to enhance its role and to expand its range of products and services offered. the aim is to position cgc as not only a provider of credit guarantees, but as an important institution that enhances the ability of smes to obtain financing from the financial institutions, in particular, through the provision of wider credit enhancement products, advisory services on financial and business development and credit information services. in 2006, cgc has shown commendable progress in this transformation process. indeed, the strategic partnership that is being entered today between cgc and islamic financial institutions is part of the initiative for cgc to expand the outreach of its products. this strategic partnership between cgc and islamic financial institutions is an important milestone as it brings together the two important objectives of the government, namely enhancing smes'access to financing and promoting the growth of islamic finance. islamic finance has now not only experienced significant growth but is becoming