rasheed mohammed al maraj : managing the challenges of industry globalization keynote address by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the 18th world islamic banking conference, manama, 22 november 2011. * * * your excellencies, ladies and gentlemen : “ salaam alaikum ” it is a pleasure to welcome you once more to the world islamic banking conference. over the years the conference has become firmly established as a landmark event not only in the calendar of bahrain, but also in that of the global islamic financial services industry. i would like to congratulate the organisers for once again having assembled such a strong list of speakers at this year ’ s event. a special word of thanks is due to the many distinguished speakers who will be appearing during the conference. their contributions are vital to its success. no less important are the contributions made by the sponsors, who have again been generous in their support. collectively, your contributions are the reasons for the great success of the wibc. the topic of this year ’ s inaugural session is that of managing the challenges of industry globalization : strengthening regulatory frameworks to accelerate the international development of islamic finance. this is an immensely important topic. as i have pointed out in several speeches since the global financial crisis began over three years ago, it is essential for the future development of the islamic financial industry that it learns from the mistakes of interest based finance. this includes making sure that it is based on secure regulatory foundations. in the past 30 years we have seen the growth of a truly global financial system. financial markets and institutions no longer stop at national borders. for example, the amount lent by banks cross - border in 1983 was $ 703 billion. by 2008, the year that the financial crisis became global, that figure had risen to $ 20 trillion. the trends in the banking market were followed by trends in other sectors of the financial industry. a globalised financial system delivered many benefits. capital was free to flow where it could obtain the best investment returns. in many parts of the world, foreign capital was responsible for creating new businesses and factories that raised rates of economic growth and provided employment to millions of people. as a result, the process of capital allocation that the global financial system made possible was responsible for lifting countless millions of people out of poverty. it is important for critics of the global financial system to remember this achievement. it is far from insignificant. at the same time, however

sizable spending cuts and, more importantly, adjustments to long - term expenditures, in particular to the pension system, all of which will have a strong positive impact on the long - term sustainability of public finances. but the success of the adjustment will depend first and foremost on achieving a solid and sustainable growth rate. this goal requires implementing the necessary structural reforms to increase productivity and the efficiency of the economy, and establishing a more balanced and stable pattern of growth. the most important of these reforms have already begun to be introduced, in particular those bearing on the labour market and the financial sector, but continuous progress is needed. the third pillar of the spanish action plan is the restructuring of the financial sector and its adaptation to an economy less dependent on credit and leverage for growth. restructuring turns on two essential aspects : the downsizing of the banking sector as a whole, and maintaining a sufficiently large backstop as to ensure the capital that is required, but using only that necessary so as not to overburden public debt, no matter how small the spanish public debt is. the hard times that characterise a protracted process of economic and financial adjustment are familiar to many latin american countries, which have experienced sovereign and banking crises over the past decades. but they have avoided it this time. indeed, latin america has proved outstandingly resilient at a time of global hardship, as too have many emerging economies – perhaps with the exception of some eastern european countries. before the crisis, most latin american countries had dramatically reduced their vulnerabilities, precisely as a result of the lessons learnt in the previous crisis. accordingly, there were no severe problems of overborrowing or external imbalances of the sort experienced by industrial countries, and the current adjustment, while significant in size, has been swift. recovery in asia and latin america is proving strong and driven increasingly by domestic demand. all in all, improved fundamentals relative to industrial countries have placed emerging market economies in a much better position to resume high levels of growth. going back to a debate that was popular in the first half of 2008, we can say that, after all, emerging countries have been able to “ decouple ” from the dire growth prospects of advanced economies. but it is still uncertain whether solid growth in emerging economies can be sustained over the medium term if external demand from major industrial economies remains subdued for a protracted period. moving one step forward, we can ask to what extent emerging economies can act as an effective engine for growth in