The Islamic world's top central bankers are meeting in Bali this week to tackle problems ranging from personnel to paperwork that hobble Islamic banking despite growing demand for its products.
Their aim is to boost global Islamic financial markets, which Indonesian officials estimate are worth $200 billion and which pay no interest, in contrast to conventional banks.
Officials say big local and Western banks are rushing to capitalise on keen demand for Islamic financial products amid historic low interest rates in the traditional banking industry in many countries, and the growing tendency of many Muslims world-wide to identify with their religion.
Muslims make up around 20 percent of the world's population.
The three-day meeting opened on Wednesday and is organised by the Islamic Financial Services Board, an international body that sets standards in accordance with Islamic sharia rules.
The bankers are expected to come up with recommendations on training people how to apply sharia law to banking and how to improve standards and documents to boost business for Islamic financial institutions in Muslim and non-Muslim countries.
These institutions have grown by around $40 billion since 1995 to $200 billion. IFSB's secretary general Rifaat Ahmed Abdel Karim said estimated that Islamic financial markets had grown at 10-15 percent annually in recent years.
Indonesian central bank governor Burhanuddin Abdullah said bankers also expected draft prudential standards on capital adequacy ratio and risk management affecting Islamic banks could be issued by the IFSB by the end of this year.
Unlike conventional banking practices, certain international standards, such as the minimum capital ratio, have not been issued for sharia banks.
Western firms offering Islamic financial services - which opt for profit sharing instead of paying interest, which is prohibited by sharia law - include Citigroup Inc, UBS, BNP Paribas and HSBC Holdings Plc.
The meeting will also look at how to develop sharia-based products, not just for the banking industry but also for other financial sectors such as capital markets, Indonesian central bank deputy governor Maulana Ibrahim said.
Sharia law bans investment in industries related to alcohol, pork, gambling and arms.
The bankers are meeting on the Indonesian resort island of Bali, where Islamic militants linked to Osama bin Laden's al Qaeda network killed 202 people in bomb attacks in October 2002.
In Indonesia, the world's most populous Muslim nation, depositors can earn annual returns of 7 to 8 percent on investing in sharia Islamic banks, said Dhani Gunawan Idat, Bank Indonesia senior official in charge of sharia banking.
These are well above yields on one-month rupiah currency bank deposits, which are 6.11 percent on an annual basis.
But bankers warned that, in order to draw Muslim and non-Muslim investors, steps were needed to deal with issues such as a shortage of people trained in how sharia law principles apply to banking and poor trading liquidity in many Islamic financial products.
Tackling these problems would be critical for the industry to achieve sustainable growth, Indonesian officials said.
Despite its recent expansion, Islamic banking remains small relative to overall banking assets in many Muslim countries.
Participants at the Bali meeting include monetary authorities from Bahrain, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Pakistan, Qatar and Saudi Arabia.
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