Zeti: Malaysia Proves Islamic Finance Promotes Financial Stability

KUALA LUMPUR - Malaysia has proven that Islamic finance not only contributes to financial stability but also enables more economic sectors to participate in the financial system, according to Bank Negara Malaysia (BNM) Governor Tan Sri Dr Zeti Akhtar Aziz.

She told the Nikkei Islamic Finance Symposium 2008 in Tokyo over the weekend that Islamic finance's greater financial inclusion has particularly benefited small & medium enterprises (SMEs) and micro financing.

"This has resulted in a more diversified financial system that has increased its overall resilience. Secondly it has increased our international linkages," she said.

Islamic finance, she pointed out, has become a new area of growth that has become very vibrant in generating income, wealth and employment.

Additionally, it also has a role in terms of further deepening financial relationships and the regional financial integration process, she stressed.

On Japan's potential participation in Islamic finance, Dr Zeti spoke of Japanese financial institutions, authorities and corporations benefiting from Islamic finance, especially in the Islamic capital markets.

Noting Japan's strong trade and investment links in the Asian region and Malaysia in particular, she pointed out that Islamic finance can deepen the related financial linkages.

The infrastructure for the linkages is already there, such as BNM's memorandum of understanding with Japan Bank for International Cooperation and a strategic alliance between one of the largest Japanese insurance groups with a Malaysian insurance company in Malaysia which resulted in the establishment of a takaful company.

"Enhancing new linkages in this relationship and the prospect for greater integration will contribute towards unlocking potential opportunities for mutual prosperity of the region," she added.

"Efforts can also be focused on facilitating cross listing of sukuk (Islamic bonds) in multiple jurisdictions. Japan can also use Malaysia as a platform for innovation and research in Islamic finance.

"Thus it is hoped that the Japanese participation in the Islamic financial markets will contribute towards further international financial integration and thus achieve a more efficient allocation of resources across borders."

Dr Zeti explained how Malaysia's development of Islamic finance has contributed positively to overall financial aspects - "It has resulted in a more diversified financial system that has increased its overall resilience. Secondly it has increased our international linkages."

In the current liberalised and globalised environment, Islamic finance is at the threshold of a new dimension in strengthening financial inter-linkages between nations in the global economy, she added.