Across the world, financiers are rushing to fill this gap. In November, the world's first international sukuk fund aimed at GCC investors was launched in Zurich by a Swiss private bank. The following month, US-based Shariah Capital, a firm set up four years ago to customise conventional products for Muslim investors, was listed on London's Alternative Investment Market as part of an attempt to raise its European profile. And in March this year, another landmark was reached: European Islamic Investment Bank (EIIB), the EU's first dedicated sharia-compliant investment bank, received a licence from the UK's Financial Services Authority (FSA).

Like its retail counterpart Islamic Bank of Britain (IBB), which received an FSA licence the previous year, EIIB is the brainchild of Gulf investors. The idea was developed by GCC Islamic banking doyen Adnan Yousif who also serves as chairman and Bahrain-based financial advisory boutique Islamic Joint Venture Partners. Its shareholder roster of more than 200 reads like a roll-call of the region's prominent high net-worth individuals and Islamic financial institutions in itself proof of the gap in the market.

'Our shareholders make up the majority of our client base,' says EIIB managing director John Weguelin, who joined from Bank of America. 'Their initial reason for investing was because they wanted access to an Islamic investment bank in an internationally regulated financial centre, so they are our natural clients.' The client list has now grown to more than 800 across its core treasury and capital markets, corporate finance and asset management businesses.

The key to the success of EIIB has been the development of a broader range of Islamic investment products understood by and acceptable to the most sophisticated international regulators. Sukuks and derivatives are on offer and the bank is now quoting a two-way sukuk issue the first of its kind in London. On the asset management side, a range of alternative asset classes is under development. 'Our target audience at the moment is the GCC because of the region's wealth and liquidity, but these are being developed for the world as a whole,' says Weguelin. An Islamic private banking model and a pan-European real estate fund are due to be launched in 2007.

An engaged and sympathetic regulator has greatly facilitated the process. There is high-level political support in the UK for the development of Islamic finance. Chief executioner of the policy is the FSA, which has built up a knowledge unrivalled among European counterparts of the concepts and structures of the industry (MEED 1:12:06, Briefing).

'The government has been as helpful as possible,' says Weguelin. 'The FSA talks about the UK becoming the Islamic financial hub of Europe and has really worked hard to address, for example, some of the issues surrounding sukuks, such as stamp duty and double taxation.' So far, only one product has been rejected, a mukhala instrument, which ran up against the problem faced much more acutely during the IBB licensing process the insistence under UK law of the 'capital certainty' of deposits, where the depositor is assured full repayment, as opposed to the risk-sharing model required under sharia law. The approvals process is also made easier for EIIB than for its retail equivalent by the client base: the FSA can be a little less energetic in protecting the interests of wealthy GCC investors than British high street customers.

Being FSA-regulated confers different advantages for EIIB than for IBB. The latter will eventually be permitted to roll out branches into other EU states without fresh licences from the home country. For the investment bank, th