By Irene Hell
The dramatic growth of Islamic banking and finance appeared to have been confirmed during the recent World Economic Forum in Sharm al-Sheikh in Egypt.
Egypt's Hosni Mubarak addresses the meeting in Sharm al-Sheikh
One of Germany's biggest banks, Deutsche Bank, announced a joint venture with Ithmaar Bank of Bahrain and Abraaj Capital of Dubai to launch a $2bn (£1bn) Sharia-compliant financial fund.
The banks say the fund is designed to boost education initiatives and investment in media and energy companies, and infrastructure in the Middle East.
More and more conventional international banks, such as Citibank, HSBC and UBS, are converting some of their services to interest-free Islamic finance models.
Estimates of the value of Islamic banking internationally range from $200bn to $500bn.
Some financial analysts are concerned that the increase in Islamic banking opens Western financial institutions to influence informed by a conservative Islamic agenda.
But many bankers at the World Economic Forum were upbeat about a growing success story of banking services which they argue are a fairer and more ethical way to handle financial affairs.
"I am very proud our baby is growing," says Alexander Theocharides, a director with Faisal Finance, the first Islamic bank in Switzerland.
"The volume of Islamic Finance has now reached approximately $500bn and we are witnessing an annual growth of about 10%."
"We want to make the concept of this kind of ethical investment available to the West," Mr Theocharides explains. "Everybody, non-Muslims included, can take advantage of Islamic finance products."
Other than the Gulf region, Switzerland and Malaysia are now the hubs of Islamic finance.
Banks that are Sharia-compliant do not charge or pay interest and they do not finance projects that are considered not to comply with the principles of Sharia - such as investments in gambling, alcohol production and so on.
The business model of Islamic finance is based on partnership and not on "riba", usurious interest taking, which is forbidden in the Koran. However even though they don't charge interest, Islamic banks are generally not charity organisations.
The customer and the Islamic bank share the risk of any investment on agreed terms, and divide any profits between them.
Supporters of Islamic banking see a potential market of more than a billion Muslims in the world, many of them seeking financial institutions which reflect their religious beliefs.
PRINCIPLES OF ISLAMIC BANKING
All money must be invested in purely ethical industries
The giving or receiving of interest is forbidden
Money cannot be simply traded for money
Money can be used to buy goods or services, which can then be sold for a profit
Financial analysts say that Middle Eastern clients have over recent years transferred billions of dollars out of conventional Western banks. Many feared being caught up in strict new financial regulations being passed in the wake of the 9/11 attacks.
Islamic banks say they have benefited from this.
Another issue for investors has been the fact that so far there is no standard law or practice for Islamic finance and banking.
Scholars in Malaysia and other Islamic countries are working on building a consensus on practice.
It is also the case that in more conservative countries, such as Saudi Arabia, the taking and paying of interest is less accepted than in more liberal Islamic countries, such as Egypt or Jordan.
Many Middle Eastern Islamic banks are more social or co-operative banks in the West.
Charity is a core value, or pillar, of Islam. Every Muslim is obliged to pay "Zakat", a payment of 2.5% of his wealth to benefit the poor.
Engku Rabiah Adawiah Engku Ali, a professor of the International Islamic University of Malaysia hopes that growth of Islamic banking will help to create a better distribution of wealth in the Islamic world.
"Greed is a problem. We have to keep reminding ourselves not to follow greed", she says.