From Australia to Britain and even France, which recently banned the face-veil, Western economies are adjusting their laws to encourage growth in the Islamic finance sector they hope will attract wealthy Gulf investors.
Enthusiasm in the United States has been tempered by politics, however, which could slow the growth of Islamic finance and push business from the oil exporting Gulf elsewhere.
Islamic finance has faced scrutiny in the United States, with critics suggesting the $1 trillion industry was a front to funnel funds to terrorists or a plot by Muslims to spread a system of Islamic principles known as sharia, which includes a ban on interest.
The Center for Security Policy, a US think tank, last month issued a report titled â€œSharia: The Threat to Americaâ€, which said that practices promoting sharia were â€œincompatible with the constitutionâ€ and should be â€œproscribed.â€ The report was presented on Capitol Hill and endorsed by some Republicans.
Former Speaker of the House of Representatives Newt Gingrich has also been busy on the speaking circuit, calling for a federal law to ensure sharia, and sharia-compliant finance by extension, is not recognised by any U.S. court.
â€œIf thereâ€™s a choice, and the return and risk analysis is comparable but one place is opening their arms to Muslims while politicians in another country are making them feel unwelcome, of course Muslims will go to the jurisdiction that is more welcoming,â€ said Jawad Ali, managing partner and deputy global head of Islamic finance at King & Spalding.
Favourable investment destination
Traditionally, the United States has been a favourable investment destination for Middle Eastern investors and Ali says there is still much to recommend it.
For one thing, the current US tax regime is conducive to the growth of sharia-compliant structured finance. And most Gulf Arab currencies are tied to the dollar, in which their oil exports are priced, which eliminates the significant currency risk involved in doing business across continents.
But the growing political rhetoric in the United States could persuade some investors to delay their decisions.
â€œInvestors arenâ€™t running away from the United States just yet but I have seen a number of potential investors from the region reconsider sharia-compliant investments they were about to make because theyâ€™re wary of the climate,â€ one Gulf-based Islamic banker said.
Another Islamic banker said discussions with a U.S.-based firm to raise financing through an Islamic bond, or sukuk, fell through earlier this year after the client feared controversy. The firm is considering a conventional bond instead.
Britian had its first Islamic bond launch in August, when International Innovative Technologies raised financing through a USD 10 million sukuk deal. But the size of that bond still pales in comparison to General Electricâ€™s USD 500 million Islamic bond last year — the first sukuk ever from a major US company.
In reality, any negative rhetoric surrounding Islamic finance is unlikely to harm the Middle East economically.
U.S. firms have been actively investing in the Middle East this year and when deals require Islamic financing, US corporations have been happy to comply.
With US and European recovery prospects uncertain, Western companies and funds are still looking to the higher returns on offer in growing emerging markets, and that includes the Gulf.
What the negative sentiment has done is dampen some of the momentum for the growth of Islamic finance services in the United States, which is home to between 5 and 7 million Muslims.
According to a Pew Research study, 41% of American Muslims make over $50,000 a year. There are about 20 financial institutions that offer Islamic products, such as mortgages and private equity investments, but no fully Islamic banks.
Observant British Muslims, by comparison, are served by the Islamic Bank of Britain.
â€œThereâ€™s a lot of people that donâ€™t know anything about Islam and Muslim countries have done very little to educate the American people,â€ James Abourezk, a former Senator and the first Arab-American to serve in the U.S. Senate, said.
To that end, the U.S. Federal Reserve has launched an Islamic finance study group and is seeking consultants within the Islamic finance industry.
The U.S. Treasury has launched the Islamic Finance 101 programme to teach government agencies about sharia-compliant business. The programme is run with Harvardâ€™s Islamic Finance Project, which was created in 1995 to study Islamic finance from a legal perspective and foster collaboration among scholars inside and outside the Muslim world.
But these initiatives have also been politicised.
A column in the Washington Times was accompanied by a cartoon of Supreme Court nominee Elena Kagan with a turban on her head, admonishing her for â€œenabling of the penetration of sharia into our capital marketsâ€ by supporting Harvardâ€™s Islamic finance project when she was dean of the law school.