mohd razif bin abd kadir : islamic finance and the collaboration between malaysia and bahrain special remarks by mr mohd razif bin abd kadir, deputy governor of the central bank of malaysia, at the signing ceremony of memorandum of understanding between bursa malaysia – bahrain financial exchange, manama, 24 january 2010. * * * it is my great pleasure to be here today on this occasion of the signing ceremony of the memorandum of understanding between bursa malaysia berhad and the bahrain financial exchange. the signing we are about to witness today will lay the foundation for the collaboration by the two exchanges on bursa suq al - sila ’. i wish to thank the two exchanges for inviting me to give some remarks at this auspicious occasion. i also wish to applaud this commendable effort by the two exchanges which marks another important milestone in the development of the global islamic financial services industry and in bridging further our two countries. maintaining the stability of islamic financial system this effort takes place at a time when the global economy is entering into a period of improved international economic and financial conditions. the global financial crisis has highlighted several structural weaknesses and drawbacks in the international financial system. while islamic finance is not insulated from the effects of the current environment, the shariah principles and values that are inherent in islamic finance provide an important underlying foundation. the islamic financial system has continued, during this period, to become increasingly integrated with the international financial system. however, as this interconnectivity intensifies, the exposure to risks arising from financial and economic developments from other markets will increase. indeed disruptions in the functioning of financial markets have brought the focus of attention on financial stability issues. in addition, this recent financial market turmoil has demonstrated the consequences of liquidity constraints. this has accentuated the importance of a strong and well developed liquidity management infrastructure. essentially, international islamic financial transactions will require the development of the supporting financial infrastructure, in particular, the systems and structures for the management of liquidity. several key measures are required to improve the ability of the islamic financial system in managing such disruptions and ensure its stability. a well functioning markets and liquidity management framework are vital for islamic financial institutions to effectively manage funding of islamic financial transactions. these would also facilitate cross border capital flows and help expand the islamic financial markets as well as manage liquidity risks in a shariah compliant manner. this current global financial crisis has prompted a

, it requires an enabling and conducive environment to innovate new products and try out the various shariah concepts in islamic finance. however, going forward, there are some challenges that may impede our efforts in developing the islamic financial system. a rigorous and well developed shariah framework is needed to govern market practices of the islamic financial institutions. to achieve consistency in the development of islamic finance, all stakeholders involved in islamic finance must work in a concerted manner on interpretation issues. nonetheless, there has to be a check and balance between the need to have innovative and advanced products and the need to uphold the shariah requirements. efforts, time and resources must be pooled among the islamic finance community to expand the industry and compete healthily with the larger conventional finance markets. as such, mutual recognition and understanding of different practices are essential in allowing islamic finance to grow. for instance, bursa suq al - sila ’ could also be used as a unifying application of tawarruq practices by adopting acceptable best market practices for the islamic financial institutions and at the same time observe the shariah principles. in malaysia, we adopt a stance of mutually recognising the various shariah interpretations. this is because the interpretations have been derived from the quran and sunnah and accomplished through rigorous juristic reasoning or ijtihad by the learned shariah scholars based on religious knowledge and norms. let me conclude my remarks. awareness and appreciation of the inherent strengths of islamic finance and its vast potential for progress have generated interests amongst the global financial community. needless to say, the islamic finance community should take advantage by increasing the role of islamic finance in linking with the different parts of the world. today, the signing of the memorandum of understanding between bursa malaysia berhad and the bahrain financial exchange, marks an exciting future in islamic finance. i would encourage you to fully exploit the opportunity presented through this memorandum of understanding. islamic finance has a potential role in contributing not only to global financial stability but also towards a more balanced global growth of our countries and the islamic world at large. indeed, both malaysia and bahrain can pave the way towards bridging islamic financial markets between our regions, while we prepare ourselves for the next phase of development of the global economic and financial system, insyaallah. on that note, let me congratulate both the bahrain financial exchange and bursa malaysia berhad on the signing of the memorandum of understanding