Cameron aims to boost Islamic finance Crescent moon rising: Sukuk and sharia-compliant finance growing in importance as a sector Islamic finance has come a long way since an inauspicious birth five decades ago in Mit Ghamr, a devout village on the outskirts of Egypt's teeming capital of Cairo. It is now a well-established, vibrant industry worth more than $1tn, with footholds across the world. Growth has been particularly strong in the past decade. The ideas may have developed in Egypt, but Malaysia and the oil-rich Gulf have transformed a cottage industry into a small but thriving niche of the international financial system. The rapid expansion has attracted interest in the UK, which will this week for the first time host the "Islamic Davos," or the World Islamic Economic Forum - where David Cameron, prime minister, will announce his government will be the first outside the Muslim world to issue a bond that adheres to the principles of Islamic jurisprudence. Islam prohibits interest, which is deemed haram or sinful, and stipulates that all investments should be based on "real" assets, such as houses, factories and roads. Islamic financial products are structured to mimic conventional ones such as mortgages but adhere to these strictures. Islamic bonds, or sukuk, have been one of the more high-profile examples of the industry's growth. In 2003 $3.5bn of international sukuk were issued. Last year sales hit a record of $44.8bn, according to Dealogic. London has long been a natural hub for the Islamic finance industry, thanks to its global outlook and the numbers of skilled lawyers, bankers and accountants needed to structure, draft and even design products. But successive UK governments have long sought an even larger role for the City. The last Labour government started laying the ground for a domestic Islamic banking industry to cater for the financial needs of the UK's Muslim citizens. A spate of Islamic lenders sprang up, and the government planned to help their growth by issuing sukuk bonds. Alistair Darling, then-chancellor, planned in the Autumn Statement of 2008 to announce a groundbreaking £2bn programme to issue short-term sharia-compliant government debt. But Lehman Brothers collapsed, triggering the global financial crisis and forcing the government to focus on other matters. Although this was understandable, "there was a feeling that perhaps the UK was no longer focused on the industry" says Farmida Bi, a partner and Islamic finance expert at Norton Rose, a law firm. The current government has become increasingly keen to burnish the City's credentials as a hub for the sector - and above all to attract investment in infrastructure projects from wealthy Gulf countries in particular. This year the government set up an Islamic finance task force to examine ways to do this, and many experts argue that issuing an Islamic bond would be the best way to underscore the UK's commitment to the industry. Still, the growth of domestic Islamic banking has been a disappointment. Despite high hopes that British Muslims would flock to the new sharia-compliant institutions, interest has been limper than expected. Several lenders have had to be recapitalised and Qatar had to bail out the Islamic Bank of Britain in 2010 because of mounting losses. Most tellingly, HSBC last year decided to close its Amanah retail operations in the UK. Many experts hope that a UK sukuk issuance could contribute to a reinvigoration of the local industry. "The demonstration effect could be tremendous," says Neil Miller, global head of Islamic finance at Linklaters, a law firm. It will be good for the credibility of the UK as a European hub and home for Islamic finance.