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Muslim countries in Central Asia and Indonesia are seen as the next growth areas for the Islamic finance industry after hopes of expansion into Western markets faded and Gulf Arab markets remain fragmented.
Some Islamic banks are struggling to expand within the Gulf. Analysts say due to shareholders' sensitivities, a lack of transparency and national interests there have been hardly any acquisitions, forcing them to look elsewhere for growth.
Banks have eyed Muslim minorities in Western countries such as France, the United Kingdom and Germany, but without proper regulatory support these markets will take time to penetrate and earlier hopes for Western issuance of Islamic bonds have faded.
"For many years it's been viewed as an area with potential but realising that potential is a lot more challenging than institutions realised," said Frederick Stonehouse, head of strategic M&A at Bahrain's Unicorn Investment Bank.
Some of the Islamic banks in the UK are seen as mere offsprings of the real estate-focused business model Islamic investment houses have used in the Gulf, and have failed to gain traction.
The former Soviet republics with Muslim populations and regulators that are keener to breed the industry are seen as an alternative for Gulf Arab banks, with delegations flocking to recent Islamic finance conferences held in the region.
The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) told a summit that Russia is considering adopting its standards.
"Kazakhstan will be leading partly because within the region it's a strong financial player," said Safdar Alam, head of Islamic structuring at JP Morgan. But bankers also caution that investors might be put off as the Central Asian state's once-booming financial sector was hit hard by the global crisis.
