Islamic banking, based in the Gulf, is growing swiftly and could be responsible for managing up to half of the total savings of the Muslim world within a decade.

According to Adnan Al Bahar, a board member of the government-owned Kuwait Investment Authority and Managing Director of the Islamic investment fund, The International investor, "the Islamic market is a global pool of money that needs to be catered for in a manner that is consistent with the Islamic Shariah".

It has no single location but does have a geographic concentration. The largest contributions to this market come today from the Gulf region which has oil revenues of about $145 billion annually in the 1980s and is now earning about $70 billion per year Though other regions are growing importance such as South East Asia, the Near East, the Middle East, including Turkey and North Africa. In future, contributions to the market are likely,to come from the 10 million or more Muslims in Europe and the six billion in America.

Having grown from zero to 80 billion in 15 years, the Islamic market is increasing at 10 to 15 per cent a year. "Driven by the fact that Muslims in the last 15 to 20 years have built a significant wealth and compounded by the injunction that usury is a very serious sin in Islam, Islamic banking service has become a necessity," argued Al Bahar.

The Gulf is the centre for Islamic banking research and development. It is where the major customers reside and it is where all international operators who have chosen to have their own in-house Islamic units have based their operations.

The key players in the Islamic banking came mainly from Kuwait and Saudi Arabia. Kuwait has a market share penetration in Islamic banking of approximately 30 per cent compared to only about '10-15 per cent in Saudi Arabia, Al Bahar pointed out.

Kuwait's only Islamic bank, the Kuwait Finance House, and the Islamic investment company, the International Investor, have attracted large investment funds. The two Islamic financial institutions were the biggest single lenders recently in a $1.9 billion petrochemical project in Kuwait. The London-based United Bank of Kuwait, opened its Islamic banking division in 1991.

Islamic financial institutions such as the International Investor say they conform to the Islamic ban on charging interest by applying a range of asset management techniques that involve specially designed trading, leasing and profit-sharing transactions. An Islamic bank opts to comply with two sets of laws, the law of the land and the Islamic Shariah law, says Al Bahar.

Economists believe that in the Gulf Co-operation Countries of Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, Qatar and Oman, the region's Islamic banks could raise their share of total private assets under bank management to around 50 per cent by the year 2000 from 10 to 15 per cent at present.