##ra ) was established this year to conduct applied shariah research on the contemporary islamic finance issues. isra also provides a platform that promotes active engagement and dialogue among global shariah scholars that promote mutual respect in shariah and the convergence of views from different jurisdictions in the global islamic financial system. the third strategy is to promote greater financial integration with the global islamic financial system. the malaysian islamic financial system has also been progressively liberalised to allow for increased foreign entry and participation in our financial system, thus facilitating greater cross border flows and thus strengthening the international financial inter - linkages. this has taken the form of issuance of new licences and increasing foreign participation in both islamic banks and takaful companies to 49 %. new licences were also issued to foreign fund managers and foreign stockbrokers. in this new phase of development for islamic finance, malaysia as an international islamic financial hub, has increasingly become a meeting place for businesses from different parts of the world that need to raise funds and for investors that have surplus funds for investment. islamic finance going forward there is now a strong and growing demand for islamic financial products in the global market, far exceeding the current availability of financial products and services being provided by the islamic financial institutions. going forward, there is therefore tremendous upside potential for islamic finance. as the pace of development of the islamic financial services industry accelerates, the increasingly more complex and challenging environment will continue to shape the advancement of the industry. central to this will be the expansion of the business parameters and innovative product offerings. for this, there is increased investment in research and development to yield new instruments and structures to meet the changing requirements of the international community. an area of focus, in particular, is related to the development of mechanisms for risk mitigation and liquidity management. of importance, are the solutions needed to converge the market requirements and the shariah compliance. increased innovation also calls for greater emphasis on the implementation of best practices and higher standard of risk management. vital to this is the implementation of the prudential standards promulgated by the ifsb. there is also a need to leverage more on it applications and the strengthening of management capabilities of the islamic financial institutions. going forward, with the increased awareness and understanding of islamic finance, the role of market discipline will become increasingly important in driving islamic financial institutions towards ensuring shariah compliance in the operations, in improving operational efficiency and in instituting sound and dynamic risk management practices. the forces of innovation also

from changes in the financial environment, the technological advancements and financial reforms but also the entry of new players, including the non - traditional competitors such as non - financial services. iii. consumers are increasingly confronted with a wide range of new and innovative products and services that are delivered via new and more efficient delivery channels. as consumers are becoming increasingly demanding and financially sophisticated, greater emphasis needs to be given to the provision of the variety and quality products and services at competitive prices through the most effective channels. banking institutions need to anticipate and rapidly respond to these new demands and expectations. iv. policymakers are also confronted by the challenge of maintaining overall financial stability whilst at the same time, promoting efficiency in the financial system. balancing the trade - offs arising from meeting these objectives will be necessary to determine the best course of action. this needs to be achieved while developing the financial infrastructure, in addition, to allowing for the entry of new players into the system. v. the emergence of international players that possess the competitive advantage of being more technologically advanced with greater capability and capacity to offer more innovative products and services through new delivery channels will further intensify the competitive environment. despite its challenges, the changing economic and financial landscape also offers many opportunities ; i. new growth areas present new opportunities and financial institutions need to take advantage not only of the potential return but also the options for further diversifying the sources of income. ii. alternative sources of financing from the capital market, development financial institutions, as well as from non - bank sources such as venture capital funds, have increased significantly in recent years. financial institutions need to develop new products and services that reinforce these developments and meet the new requirements of corporate consumers. this includes providing world - class financial advisory services and wealth management services. iii. the emergence of new delivery channels such as the internet and mobile phones have significantly altered the traditional banking - customer relationship. business can be conducted seamlessly across borders. technological developments have also transformed the payment systems industry, with the introduction of new payment instruments and entry of non - banks into payment services, facilitating the migration to e - payments. market leaders can capitalise on these developments in providing products and services to customers and businesses. the changing economic and financial landscape also brings about many opportunities for trade and investment. with the accelerating pace of regional integration, financial institutions are presented the opportunities to broaden beyond domestic borders to capture opportunities for the regional markets. it has been more than 5 years since the financial sector master pan was