countries ). social health insurance schemes based on earnings contributions is a means by which such funding sources can become a complementary source of funding to public sector. such an institutional arrangement should provide high quality basic healthcare for the population whilst private health insurance can have a complementary role in providing higher level care for those that have the means to absorb these costs. in developing a financial sector that will deliver innovative financing for economic transformation throughout the different phases of development requires several supporting elements. these include : a. having strong financial institutions that are resilient to withstand the economic cycle ; b. establishment of a credit information system ; c. development of a domestic bond market for financing large investments for both the public and private sectors. this includes the necessary infrastructure to facilitate the functioning of the bond market ; d. having the talent pool in the financial services industry ; e. financial literacy has to be advanced aggressively ; f. effective structure to ensure sufficient supervisory oversight to ensure soundness and stability of the financial system ; bis central bankers ’ speeches g. mechanism for resolution of debt problems including for public and private sector ; h. potential to leverage on technology. this in particular enhances distribution channel and outreach ; i. consumer protection framework needs to be in place ; and j. surveillance mechanism needs to be in place. finally, i would like to discuss the importance of islamic finance as an important mode for financing economic transformation. islamic finance requires financial transactions to be supported by an underlying productive economic activity that will generate legitimate income and wealth. this gives rise to a close link between financial transactions and productive flows. therefore, the growth in islamic financial assets is generally in line with the growth of underlying economic activities, thereby ensuring that the financial system is always grounded to the real economy. other inherent features arising from risk sharing also contribute to the stability and integrity of islamic finance. thus, islamic finance, embraced in its entirety, is supportive of sustainable economic growth. islamic finance offers an extensive range of innovative financial products and services from consumer financing, asset and wealth management to islamic insurance and capital markets. the sukuk market has become a highly competitive fundraising option for large scale projects and infrastructure development. with an annual growth rate of 40 percent, sukuk instruments are fast emerging as an attractive new asset class for investors, while evolving to become a preferred financing and capital raising option for issuers. in malaysia, the sukuk market now accounts for more than fifty percent of our bond market, drawing the participation of not only our own corporates

zeti akhtar aziz : innovative financing for transformation speech by dr zeti akhtar aziz, governor of the central bank of malaysia, at the langkawi international dialogue 2011 : innovative financing for transformation, putrajaya, 19 june 2011. * * * the world is transforming. our motivation for accelerating our own pace of transformation is to ensure that we will be able to effectively participate in this new economic and financial environment, and in the process, maximize our potential performance. central to this is having a well functioning financial system and the right financial policies. the recent financial crisis in the developed world has shown that when things have gone wrong in the financial system, the consequences have been catastrophic. instead of creating wealth – it destroys wealth, instead of generating employment – it results in job losses, instead of facilitating economic progress – it derails growth and development. it is my great honour and pleasure to speak at this 2011 langkawi international dialogue on innovative financing for transformation. the overarching objectives of economic transformation is surely to generate sustainable and balanced growth, to improve living standards, to create employment opportunities and to achieve a more inclusive development. this decade has however seen how innovative financing in several of the developed economies have fuelled excessive levels of leverage that have resulted in deeply indebted private and public sectors, which in turn have become highly destabilizing to their financial systems and to their economies. the challenge before us is how then should the financial system be developed and regulated so that these pitfalls will be avoided while at the same time remaining dynamic and innovative so that we can push our frontiers and gain the progress that we aspire. while innovation remains essential to economic progress, it needs to be within the context of stronger governance and sound risk management practices. positive innovation can make enormous contributions to economic performance. the financial system has to deliver the essential financial services that would cater to the financial needs of all sectors of the economy – from households, small and medium enterprises, including to micro enterprises and to the corporate sector. the financial system also has to take into account the fundamental changes taking place in the global economy and the growing participation of emerging economies in the global economy. as we become more interlinked, financial systems also need to become more internationalized to facilitate and reinforce this trend. the role of the financial system is essentially to effectively intermediate and to meaningfully mobilize funds including from across borders to be channeled to productive economic activity. such intermediation must be