rate of 40 %. the vast potential in sukuk market in the international financial system indeed represents the crest of a new wave of innovation in islamic finance and is very much part of the globalisation process in islamic finance. sukuk musyarakah and ijarah, which command the broader global acceptance, represents the majority of global sukuk issuances. as part of the on going internationalisation of islamic finance has been the development of the supporting international financial architecture. of significance, is the establishment of the islamic financial services board ( ifsb ) in 2002 to set the prudential standards for islamic finance, and the accounting and auditing organization for islamic financial institutions ( aaoifi ) that was established in 1990. the importance of these international standard setting institutions has been their role in the harmonisation of prudential and accounting standards across the different jurisdictions. more importantly is their role in instituting international best practices in the global development of islamic finance. it is these concerted efforts to develop robust international best practices in the prudential and supervisory framework that will ensure the resilience and long term sustainability of the islamic financial industry. with globalisation also comes enhanced interdependence. while the strengthened interlinkages can be expected to bring about a more efficient allocation of capital across borders which in turn would result in lower the cost of capital, it has also resulted in the potential for the transfer of risks across different jurisdictions. this underscores the need to ensure the quality of financial globalisation. while the intrinsic nature of islamic finance encourages risk management and provides confidence through explicit disclosure and transparency, the new risks resulting from globalisation needs to be taken into account. this is to ensure that the islamic financial institutions have the capacity to manage the risks and that the regulatory authorities have the necessary instruments at its disposal to respond to any destablising implications. emergence of new set of challenges the enhanced international dimension of islamic finance has thus brought about a new set of challenges. the emergence of more diverse islamic financial institutions and the expended development of islamic financial markets have intensified the development of sophisticated islamic banking, takaful and capital market intermediaries. this has also resulted in the creation of sophisticated and complex structured financial instruments including hybrids of debt - equity structures. the increased competition has not only intensified the pace of innovation in products and services, but also of the operational processes and delivery channels. these developments have contributed to the increasing complexity of the risks profiles

. the intrinsic principle of profit and risk sharing thus provides an in - built check and balance to the islamic financial transactions. a combination of these distinct features together with the implementation of prudential risk management standards and practices would contribute to the robustness and resilience of islamic financial system. mutual respect on shariah matters this decade has thus been a phase of innovation in the global islamic financial system with a number of breakthroughs and major milestones in innovative deals and structures. the advancement of sukuk, islamic securitization, islamic private equity, islamic real estate investment fund and other financial instruments in terms of sophistication and product range has widened the international market reach of islamic finance, particularly in the cross border transactions. at the same time, this phase is also seeing a number of key issues being raised, particularly in respect of divergence of shariah views underlying a number of the islamic financial transactions. while such a divergence of opinions in islamic financial transactions is not a new phenomenon, it has presented a new set of challenges in today's increasingly more globalized market. to forge closer linkages between the global islamic financial markets would require a common understanding and acceptance on the applicable rules and standards. indeed, cross border transactions would require the jurisdictions involved to mutually recognise the validity of respective rules, practices and underlying shariah interpretations. this is key for the orderly development and for advancing the pace of progress of the international islamic financial industry. for this, it is important to have a concerted effort in providing greater clarity on the mutually acceptable strategy for the development of global islamic finance. in the current globalised environment, the role of scholars needs to transcend beyond pure advisory or shariah rulemaking, to a more strategic role in charting industry development. this could be in part be achieved by having global shariah standards for the islamic financial industry. a mutually agreeable position could be achieved with the application of mutually recognized principles and processes to deduce the shariah rulings and views. 1 there are lessons to be drawn from the previous success stories in the history of islamic jurisprudence whereby the strong sense of mutual respect prevailed among muslim jurists with multiplicity of shariah opinions. the jurists from different mazhab had high regard for differing views expressed by other jurists, even in ibadah matters. in relation to this, malaysia has taken a three - prong strategic initiative to promote greater mutual respect of the shariah