Banking regulators say they have given permission for the UK's first purely Islamic bank to start operating.
The Gulf has been the focus for the expansion of Islamic banking
The Islamic Bank of Britain will have its headquarters in Birmingham, which is home to one of Britain's biggest Muslim communities.
The bank will not pay or charge interest and will offer financial products that comply with Islamic law.
British banks have recently started offering products tailored for Muslims, but they are all non-Islamic banks.
For example, HSBC already offers an Islamic law (Sharia) compliant pension, home loan scheme and stockbroking service.
As Islamic banks cannot charge interest, they will commonly buy real items and lease them back to customers.
The payments from the customers will include a charge which will enable the bank to make money.
For example, if a customer wants to buy a computer, the bank will buy the machine, then sell it on to the customer at a fixed price - leasing it to them or charging a rental fee until the item is fully paid for.
The Islamic Bank of Britain has also said it will not invest in companies associated with tobacco, alcohol or pornography.
The bank opens its first branch in London's Edgware Road next month and intends to offer its services to Muslims across Europe.
Branches in Birmingham and Leicester will open by the end of October while telephone and postal banking services will be available from November, the bank said.
Managing director Michael Hanlon told BBC Radio Five Live: "This is a major event, both for the financial services industry and the UK as a whole."
He added that taking a conventional bank and adding in the Islamic model "offers enormous opportunity" as an alternative banking model.
In addition to Britain's Muslim community, the country receives tens of thousands of visitors from the Middle East each year.
"Even though our core market is the UK's 1.8 million Muslims and Muslims visiting the UK, our proposition is holistic as it will attract all members of the community not just in the UK but across the world," said Waheed Qaiser, a senior bank official.
The bank says it has start-up capital of £14m from investors in the Gulf and British Muslims.
It will seek to raise a further £40m-50m through a public share sale in the UK, leading to a stock market listing, and a private placement of shares in the Middle East.