New Islamic Financial Landscape Focuses On Financial Stability - Governor

KUALA LUMPUR, Nov 15 (Bernama) -- The increased focus on financial stability, especially fundamental changes in the regulatory environment, is the central aspect of the new Islamic financial landscape in an increasingly more challenging environment, Bank Negara Malaysia (BNM) (central bank) Governor Dr Zeti Akhtar Aziz said Tuesday. She said these include changes to institutional arrangements for oversight of the financial system -- both at the international level and within national borders in a number of countries. "This has significantly strengthened prudential standards with a focus on building stronger capital and liquidity buffers, increased transparency in financial transactions and exposures, and enhanced options to resolve failed financial institutions," she said in a keynote address on "The New Islamic Finance Landscape" at the Islamic Financial Intelligence Summit (IFIS) 2011 here. The two institutional arrangements, the Islamic Financial Services Board (IFSB) and the International Islamic Liquidity Management Corporation (IILM), were established for overall stability of the global financial system in a way that better serves households and businesses. She said that going forward, it was important that the international standard setting process allows and continues to promote the more effective integration and exchange of perspectives between Islamic and conventional finance to ensure a coherent global framework. Despite the continued strains experienced in the economy and the international financial system, Zeti said it was important to recognise the fundamental long-term global transformation that was taking place. "The concurrent rise of the emerging economies is resulting in a fundamental realignment in the global landscape and this transformation is characterised by the shifting balance of global economic strength to the emerging economies, with its significant implications on the global economic and financial flows," she said. The international financial landscape would also be inevitably transformed with the distribution of financial centres becoming more dispersed, thus new centres of financial activities will likely to emerge, she said. In addition, financial system inter-linkages -- particularly among the emerging economies -- would deepen, supported by the increased global trade and investment that was already taking place. "With considerable capacity to meet large investment requirements, opportunities therein lie in the more effective and efficient channelling of the sizeable surplus funds towards the vast productive investment opportunities within and across the emerging economies," she said. These trends, Zeti said, were being reinforced by the rapid expansion of financial institutions in emerging economies that have ventured beyond national borders. She said financial institutions from the emerging economies have grown significantly in size and strength in this recent decade to now account for almost half of worldwide financial industry market value. Meanwhile, another key development, she said, was the integration of financial markets amongst emerging economies, driven in part by the increased economic inter-linkages and the increased liberalisation trend in the financial sector. "The rapid internationalisation of Islamic finance is reinforcing this trend and has enhanced the economic and financial connectivity between the emerging economies. "The high level of savings and wealth accumulation in several of the emerging economies, including in Asia and the Middle East, need to be effectively channelled towards productive investments including for large infrastructure development," she said. In this environment, Islamic finance had emerged as a viable and attractive form of intermediation including financing of large scale infrastructure projects. Zeti said the advancements achieved in the sukuk market also provide evidence on the ability of Islamic finance in meeting the requirements of the differentiated demands of the modern economy. The recent issuance of the world’s first offshore RMB sukuk by Khazanah Nasional in Malaysia reflects the growing trend of multi sukuk issuances in Asia. "Growing at an average annual rate of 40 percent, the global sukuk market has demonstrated its ability to effectively intermediate funds across borders, allocating funds efficiently in the international financial system and fast becoming an important financing and capital raising option," she said. -- BERNAMA