project while conventional banks tend to rely more on collaterals. this is one of the features of islamic banking that could be of tremendous assistance to small - scale businesses. conventional banking requires comprehensive criteria that need to be satisfied for an applicant to become eligible for loans. smallscale enterprises throughout the world generally face greater difficulties in obtaining finance than large - scale enterprises do. the services sector is made up of a large number of small entrepreneurs who usually do not have ready access to finance. it is a matter of fact that small entrepreneurs who were able to obtain credit facilities on the basis of collateral in the past are now finding it difficult to raise funds for their operations. with the implementation of basel ii in the years ahead, there does exist a potential risk that conventional banks would be less inclined to lend to small - scale enterprises. given the characteristics of islamic banking, the small and medium enterprises is an economic sector where islamic banking could play a central role in giving a fillip to entrepreneurship. in short, islamic banks can play a catalytic role in fostering economic development although it has been observed that, in practice, islamic banks tend to favour short - term projects and trade finance which are less risky. this is principally due to a lack of adequate techniques for project appraisals in an islamic banking 4 context. because of these weaknesses, it is advisable to address the need for having staff with the required skills to learn the new processes for operating islamic banks. the provision of islamic financial products and services has expanded beyond the market for households, businesses and institutions to governments. they have made inroads into capital markets. the sukuk bonds – which differ from ordinary bonds to the extent that they are shariahcompliant – have gained prominence. the market for sukuk bonds is expected to register rapid growth in the years ahead as more and more conventional financial institutions are expressing keen interests and are actually participating in it. the expansion of islamic banking across the world has inevitably drawn the attention of central bankers and regulators in the middle east and elsewhere to the risk factor associated with it. like conventional banks, islamic banks also need to be effectively regulated and supervised. their strength and soundness are unequivocally as critical as for conventional banks. however, the nature of risks associated with islamic banking business brings forward an array of issues in risk measurement, income recognition, adequacy of collateral and disclosure standards. effective prudential supervision for islamic banks the world over is still in

r basant roi : the mauritius islamic finance forum - premier event in islamic finance address by mr r basant roi, governor of the bank of mauritius, at the premier event in islamic finance, grand baie, 25 - 26 july 2005. * * * hon. deputy prime minister, minister of finance and economic development hon. minister of arts & culture director of the islamic cultural centre members of the diplomatic corps ladies and gentlemen good morning i am very pleased to be here with you this morning for the premier event in islamic finance in mauritius. may i first of all express my deep appreciation to the islamic cultural centre for having taken the initiative to promote awareness in islamic finance in mauritius. i do fervently hope that the two - day forum will provide an excellent opportunity to share views and ideas on the principles underlying islamic finance and the way forward towards the promotion of islamic financial services. the concept of islamic finance dates back to ancient times. however, formal islamic financial institutions are known to have been in existence for over 30 years. in the recent past, the growth of islamic financial services worldwide has gathered momentum. islamic financial institutions are today present in more than sixty countries across the world with total assets running in hundreds of billions of us dollars. the services are certainly not confined to islamic countries. they have increasingly expanded beyond the frontiers of muslim countries and are slowly taking roots in western financial systems. i am sure that all of us here are aware that islamic laws, or the shariah, strictly prohibits fixed or pre - determined rate of interest, the riba as it is referred to, on financial instruments or such interest arising from dealings and transactions in risk instruments. here, in mauritius, we do have bank customers of 2 islamic faith not claiming interest rates on their deposits. in fact, as of today, there are about 260 holders of deposit accounts who do not claim interest. this is not a recent phenomenon. it is a feature that has marked our banking industry for several decades and relatively unknown to the general public in mauritius. it obviously follows that issues relating to islamic banking need to be discussed and fully appreciated by all of us who are in one way or the other concerned with banking in mauritius. before i proceed further with my remarks, let me underline one aspect of islamic finance that could give rise to ill - conceived interpretation. financial institutions in general keep adapting to changing socio - economic environment. finance does not have to do exclusively with any specific ethnically or religiously defined groups. islamic financial