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Like several of its Gulf neighbours, Dubai has benefited from government support for Islamic finance, a favourable regulatory environment and strong domestic ties to Islam and Shariah. It has more listed sukuk, than anywhere else. What's more, Dubai is cosmopolitan and business-friendly enough to lure talent from far afield.
'Lawyers and banks are moving to Dubai,' says Darshan Bijur, director of auditor KPMG's Islamic finance division, adding that skilled staff are attracted by the emirate's tax-free charms. 'They have established a very high-quality regulatory system in the Dubai Financial Centre,' says Bijur.
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Dubai's attractions are many: In addition to glitzy shopping malls, it boasts numerous free zones, which allow for 100% foreign ownership, 100% repatriation of capital and profits, exemption from corporate tax and no import duties.
Dubai will continue to be a major driver for Islamic finance in the near term, as it attempts to recycle the region's petroleum wealth into real estate, tourism, technology and other anchors of a truly diversified economy.
But its central role in Islamic finance isn't assured over the long haul. The UAE's dollar-pegged currency and booming economy are pushing inflation to dizzying levels.
Merrill Lynch said in January that inflation in the UAE would grow to 12% in 2008, up from 10% in 2007, unless big changes to monetary policy were forthcoming.
The rise in costs could tempt businesses to hubs like Bahrain. Industry insiders say the small island kingdom, which had an inflation rate of 4.6% in 2007, is a cheaper alternative.
International appeal
While the Islamic finance market was once a local affair, deeply rooted in the Gulf, now even Europe is getting in on the act.
The British government has voiced its determination to issue a sukuk, and the finance ministry is working to complete the necessary regulatory changes by next year.
The German state of Lower Saxony issued its own sukuk bond back in 2004 - the first European government to do so. The state hoped to attract more investment from the Middle East. It met its target of raising 100 million euros, but has not issued another sukuk since.
Even some highly unlikely contenders want a piece of the lucrative industry.
Malaysia has been strong in the market for the past decade, but now Asian countries with tiny Muslim populations are also looking to participate.
Staff Reporter
