Methods to increase the scope and growth of Islamic banking, which has played an increasing role in project lending and trade finance in the Middle East and South Asia, are being sought by executives in the industry.

The assets of Islamic financial institutions grew by 2,100 per cent to around $166bn during the decade to 1995, according to Mr Samir Abid Shaikh, secretary-general of the International Association of Islamic Banks.

Speaking on 11 November at a conference in Dubai, Mr Shaikh claimed that the growth rate of the sector was "tapering off at 5 to 7 per cent".

Another banker, Mr Wael al-Mazeedi of Washington-based MENA Capital Resources, argued that "Islamic funds are leaving the (Middle East) region", estimating that $650bn of Middle East capital was channelled outside the region, home to a quarter of the world's Islamic financial institutions.

Positive developments noted by Islamic bankers include the potential for combined western and Islamic financing, recently incorporated in the big-ticket project financing for a major Kuwaiti petrochemicals project, the $2bn Equate scheme at SLaaiba industrial complex (1TF 271/3).

Two tranches of Islamic financing for this were underwritten by Kuwaiti Finance House. But the increasing competition and innovation from western banks — particularly non-Islamic institutions which have their own Islamic banking units., like Citibank, Kleinwort Benson and Flemings - has forced many of the Islamic sector's 185 or so financial institutions to re-examine their activities.

Mr Mohammad al-Faisal, chairman of Dar al-Maal al-Islami, said at the conference that a better public, understanding of Islamic finance was needed to promote new growth.

"Legal hindrances also need to be addressed", he said, adding that "certain minor modification of laws to permit Islamic banks to operate in a legal framework", were necessary.

The job of regulators could also be made easier, according to the United Arab Emirates Central Bank governor, Mr. Sultan bin Nasser al-Suweidi, who argued that Islamic financial institutions should standardise their products and operations.