It said Islamic financial institutions had total assets in 2009, despite a gloomy international economic environment, of $US950 billion ($1.03 trillion).
But it estimated that the sector's potential was "worth at least at least $US5.0 trillion ($5.43 trillion) and the industry is continuing to expand globally."
Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.
Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.
Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.
Moody's Vice President and Senior Credit Officer Anwar Hassoune said that Islamic financial bodies now wanted to use derivative instruments to hedge against risk and to improve monitoring practices.
"However they are keen to do so in a Sharia-compliant manner, rather than imitating conventional derivative instruments, in order to avoid losing their special status as Sharia-compliant banks, which makes them very attractive to a large population of Muslims.
"For this reason a new innovation phase in the industry is critical."
source : AFP