Dr Zeti Emphasises Economic Well-being Challenge of Islamic Finance at IDB Prize Acceptance Speech (By MIFC)

The advancements the Islamic finance industry has made in the last decade have resulted in wide-ranging new opportunities. However the globalisation of the Islamic finance industry needs to enhance the economic well-being of countries where it is widely prevalent, affirmed Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (BNM), in her acceptance speech of the prestigious Islamic Development Bank (IDB) Prize in Islamic Banking and Finance for 2012 at an award ceremony held on 3 April 2012 during the 37th Annual Meeting of the IDB Board of Governors in Khartoum, Sudan.

"While the international dimension of Islamic finance will enhance the connectivity of our economy," emphasised Dr. Zeti, "our resolve, conviction and compassion will be needed to ensure that the greater interlinkages and thus increased interdependence will enhance economic well being. The benefits that it yields will be mutually reinforcing for our economies."

In his citation, Dr Ahmad Mohamed Ali, President of the IDB Group, commended Dr. Zeti for "her notable accomplishments and her valuable contribution, dedication and leadership in the development of the Islamic banking and finance industry, Takaful infrastructure and Shariah governance framework in and outside Malaysia; and her invaluable services in supporting the Islamic Financial Services Board (IFSB), the creation of International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy for Islamic Finance (ISRA), the establishment of the Malaysia International Islamic Financial Centre (MIFC), and lately the founding of the International Islamic Liquidity Management Corporation (IILM) in Kuala Lumpur".

Dr. Zeti stressed that in this more recent decade Islamic finance has presented a new phase of development as the industry shifts from being domestic in orientation into becoming increasingly internationalized. This shift has facilitated increased connectivity between the economies where Islamic finance is practiced, including greater movement of funds across borders from jurisdictions with surplus funds to regions with investment opportunities thus facilitating increased growth and development.

In addition, the sukuk market, in particular, has evolved into a truly international market, attracting the participation of issuers and investors across the globe and generating cross border flows. This is also fostering greater economic and financial flows of trade and investment which in turn enhances the growth potential of IDB member countries economies.

Dr. Zeti reminded her audience that the Islamic finance industry demonstrated its resilience during the recent global financial crisis, with the result that its progress has not been disrupted during this period. This resilience was due to the inherent strengths of the Islamic finance industry, reinforced by a cohesive cross border regulatory framework.

"However, given that the environment before us is being dramatically transformed, our resilience needs to be strengthened and supported by strong international collaboration and cooperation. This is perhaps the most challenging issue confronting Islamic finance, moving forward. Strategic collective efforts and concerted actions relating to the international Islamic financial architecture, institutional arrangements and mechanisms including for cross-border liquidity management, crisis management and resolution have yet to be developed. Its development will ensure strengthened resilience in this new environment and thus its sustainability," she advised.

Dr. Zeti thanked the IDB and its Prize Award Committee and stressed that it is a great honour to be the recipient of the IDB Prize in Islamic Banking and Finance for this year.

"I am most humbled to be presented with this award. It has been my privilege to be part of a truly remarkable journey in the development of Islamic finance, which has experienced a pace of growth and development that has been unprecedented in a highly difficult international environment. It has also been remarkable in that the Islamic financial industry has been dynamic and evolving to meet the rapidly changing requirements of the modern economy," she added.

The built-in checks and balances, the ethical values and the Shariah injunctions of Islamic finance that require financial transactions to be anchored to the real economy have guided the process towards responsible financial innovation that truly serves the real economy. Most important, however, she stressed, is that it serves every segment of society and scale of business. It therefore is a powerful channel to realize the financial inclusion agenda for the betterment of humanity.

The IDB Prize is awarded alternating between Islamic Economics and Islamic Banking and Finance. It was established in 1988 to recognize, reward and encourage the activity of outstanding merit in promoting Islamic Economics, Banking and Finance. During the last 24 years, the Prize has been awarded to 33 regulators, researchers, bankers, economists, Shariah scholars and institutions.