Speaking at a roundtable organised by Dow Jones Indexes on the growing importance of Islamic finance in the region, Saidi said that the Islamic banking sector had proved relatively resilient to the global economic downturn.

He said it should be seen by regional governments as an opportunity for bringing in Sharia-compliant financial instruments to finance large scale infrastructure and public works projects.

"This is the perfect timing and opportunity for governments, and particularly in the GCC, to start using sukuk and other Islamic financial instruments as an integral part of public finance, of deficit finance and public debt management," said Saidi.

According to him, the most appropriate finance for large scale projects, such as port development, desalination, and public works projects, is sukuk finance.

"It makes for better accountability, it creates greater transparency, and in terms of timing, you're better off looking at longer term finance instruments than current revenue," he said.

Islamic indices have held up better than conventional indices in the current crisis. In the year to date, the Dow Jones Islamic Market world index experienced a drop of 4.87 per cent.

In comparison, the Dow Jones conventional World Index fell over 9.06 per cent, according to figures provided by Sumeet Nihalani, senior director of Dow Jones Indexes.

"If you look at the Dow Jones indices over the 10 year period, there is a clear outperformance of Islamic finance and Sharia-compliant equity investment compared to either the emerging markets, or certainly against the advanced markets," said Saidi.

It is estimated that global Islamic finance assets were worth over $730 billion (Dh2.7 trillion) at the end of 2007, up from $531 billion in 2006, with the sukuk market taking up about 11 or 12 per cent of the total assets.

Saidi expects the market to account for around $830 billion by the end of 2008.

Although such figures are dwarfed by the size of assets in commercial banks, the market potential is much greater due to the crisis in the traditional banking sectors.

"In my opinion, in the next few years, about 40-50 per cent of the regional market will be for Islamic banking, and the UAE is the most important market for Islamic banks," said Ali Afshar, senior vice- president and head of institutional and investment banking at Al Hilal Bank in Abu Dhabi.

The bank has already opened eight branches since opening in June 2008, and plans to open eight more this year. "Our deposits have been way in excess of what we were projecting," he said.