rasheed mohammed al maraj : developing the global islamic financial markets speech by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the 2nd international islamic financial markets conference, manama, 18 june 2007. * * * your excellencies, distinguished guests, ladies and gentlemen – good morning. it is a great pleasure for me to welcome you all today, and to help inaugurate the start of this important event, the 2nd international islamic financial markets conference, here in bahrain. i should like to take this opportunity to express my own personal appreciation for the distinguished panel of speakers. i should also like to commend the iifm, and the islamic research and training institute, for putting together a stimulating programme of topics for the next two days, and for their active support of the development of the islamic finance industry. thanks are also due to the many corporate sponsors of this event, for making this event possible, and to the many attendees, whose participation is also essential to the success of such events. the theme of this conference – “ developing the global islamic financial markets ” – is particularly pertinent. the islamic finance sector continues to demonstrate strong growth, and higher levels of market penetration. it is also fast internationalizing. but it has also reached a stage where it faces some interesting challenges, if it is to really take off as a major component of global financial market activities. these challenges revolve around the continuing need to achieve greater alignment and convergence, without which the vision of deep and liquid global islamic financial markets risks being compromised. by greater alignment and convergence, i am referring specifically to the need for further progress in terms of aligning the accounting standards and prudential regulations applied to islamic finance, as well as the development of standardized instruments and market practices. greater harmonization in these areas is critical, in my view, in order to help sustain the rapid growth and internationalization of islamic finance. to state the obvious, such differences create additional costs for internationally - active firms and competitive distortions, as well as reduce transparency for investors and counter - parties. of course, this is a challenge facing conventional finance as well. but the relative newness of modern - day islamic finance means that the disparities in approaches in these areas are somewhat greater in this industry. this issue has already been widely aired, and efforts are of course being made to narrow these differences – more on this in a moment. but broadly speaking further progress

for global best practice, and would foster domestic and international investor confidence in the integrity and robustness of the national payment system. ” back in december 2004, our central bank joined the cls cooperative oversight arrangement led by the federal reserve bank of new york, as the regulator of the cls bank, in order to ensure that, in the settlement of the rand in the cls system, our domestic policy objectives continued to be met. we also joined the cls operators forum, also led by the federal reserve bank of new york, to ensure the coordination of relevant actions by all real - time gross settlement system operators that are linked to the cls system. in all these cooperative arrangements, there is an appreciation of regular interaction as well as frank and constructive engagement with cls management and executives. before i conclude, let me share some information on our participation in the cls system. in 2004, when we joined the system, two of our banks, namely absa and standard bank, became settlement members. these banks had obtained direct access to the cls system in terms of submitting their foreign - exchange trades. absa has, however, since become a member of the barclays group and its membership has thus been terminated. it is now a submitting branch of barclays in the cls system. at the time, we had six rand nostro service providers, namely absa, calyon, citi, firstrand bank, nedbank, and standard bank. these banks provide services to cls members in terms of either receiving rands that are purchased and settled through the cls system or funding rands that are sold and settled through the cls system. in terms of rand settlement members, they are in a position to receive and fund rands for their own account. as far as rand settlement in the cls system is concerned, during 2005, an average of r83 billion worth of rand trades were settled in the cls system on a daily basis. to settle these trades, the average daily liquidity requirement that needed to be paid into the cls system through the samos system amounted to only r6, 2 billion. this resulted in a liquidity efficiency of 7, 5 per cent. by 2009, the average values of rand trades that were settled in the cls system on a daily basis had grown to r163 billion. to settle these trades, the average daily liquidity requirement that needed to be paid into the cls system through the