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The world's largest Sharia lender will be launched in Bahrain within six months.
Sheikh Saleh Abdullah Kamel, chairman of the General Council of Islamic Banks and Financial Institutions announced that the bank is to have a paid-up capital of $11 billion, with the Islamic Development Bank (IDB) as its largest shareholder.
He added that the Organisation of Islamic Conference (OIC) countries would also invest in the bank.
"I think it is the best time to push and to encourage people to invest in the real economy ... industry, agriculture, but not to invest in markets and derivatives and these blow-up things," he said during the announcement in Kuala Lumpur.
Islamic finance is based on Sharia, or Islamic law. It avoids the interest-based formula of conventional banking and argues that gains must be derived from ethical investing and for profits and losses to be shared between venture partners.
Once a niche market serving devout Muslims, Islamic finance has gained in popularity as the global financial crisis has prompted some investors to rethink the merits of conventional banking.
The bank, which has yet to be formally named, has been in the pipeline for several years and is currently undergoing final review by IDB on its capital input.
While a total of $1 billion will be raised by private investors, including IDB, the other $10 billion is expected to come from an IPO on the Bahrain stock exchange.
Sheik Saleh said the bank aims to fund economic development in Muslim countries and increase liquidity in the Islamic financial sector, a weakness in the Islamic financial system.
