Once touted as a viable alternative to traditional banking, Islamic finance has failed to make a mark outside its core markets as countries from Britain to Hong Kong and Australia put on hold sukuk issuance plans and proposed regulatory changes to accommodate sharia banking.
Dwarfed by the size and financial muscle of its conventional banking rival, the $1 trillion Islamic finance industry needs to find new markets beyond the Middle East and Southeast Asia for growth.
In the first meeting of top officials since the Middle East unrest broke, Gulf and Asian regulators and bankers will gather in Singapore on Wednesday and Thursday to restore confidence in sukuk as fund-raising instruments.
Several high-profile sukuk defaults have thrown up legal uncertainties such as the extent to which sukuk holders own assets underpinning the issue when the instrument sours.
Kuwait's International Investment Group defaulted on two sukuk payments last year, and The Investment Dar, which owns half of British carmaker Aston Martin, defaulted on sukuk in May 2009. U.S. energy firm East Cameron defaulted on its sukuk issue in 2008.
The legal uncertainties contributed to a drop in Islamic bond issuance last year, bankers have said. Sukuk sales fell 26 percent to $14 billion in 2010, according to Thomson Reuters data.
Badlisyah Abdul Ghani, chief executive officer of Malaysia's CIMB Islamic Bank, said the industry would pick take some time to pick up.
"When Islamic finance was introduced in Malaysia, it took a few years before other players started to pick up the business," he said. "When it was opened to 1993 to other players, it took about five years before we saw a lot of momentum."