I contend that as increasing numbers of people in the West become dissatisfied or skeptical about the banking services they receive, and see them as exploitative or even unethical, the emergence of Islamic banking with its own distinctive morality could help project a much more positive face to Islam. Islamic banking and finance can help foster dialog between Westerners and Muslims.

Islamic retail financial institutions, including the Islamic Bank of Britain, the European Islamic Investment Bank and Lariba Bank in California, are now well established in a number of Western countries. Furthermore, the leading international banks, including Citibank, HSBC Amanah, Deutsche Bank and UBS of Switzerland, all offer Islamic deposits and shari'a-compliant financing facilities.

There has been much dialog between the Western bankers working in these institutions and the shari'a scholars who advise what is, and what is not, permissible. This dialog extends to insurance, where Islamic companies have become increasingly active, their distinguishing feature being that they do not hold conventional interest-yielding bonds, and that shareholder funds and premiums paid by policy holders cannot be co-mingled.

As shari'a is about universal, divinely inspired principles rather than national laws, leading international law firms have also become involved in Islamic banking and finance, as contracts need to be drafted under English or American law in a way that is consistent with shari'a. Indeed, the main job of the shari'a committee members who serve on the boards of Islamic banks and conventional banks offering Islamic products is to ensure that new contracts are compatible with shari'a principles and, if they are not, to pursue a dialog with the lawyers concerning amendments and redrafting.

The aspiration of many Islamists is to have divinely inspired shari'a replacing man-made laws, perhaps even the establishment of a universal caliphate under which everyone, Muslim and non-Muslim, should live. Not surprisingly, such an aspiration is unacceptable for most non-Muslims, and indeed for many Muslims, as it denies choice.

Islamic banking and finance can point the way forward: it is about extending choice, not restricting options. As each institution has its own shari'a board, shari'a compliance is effectively privatized, rather than being a matter of national law. Indeed, each shari'a board passes its own fatwas, or religious rulings, which further extends choice in the marketplace for religious ideas. Religion, of course, flourishes under competitive conditions and Islam is no exception, whereas when it is nationalized, its adherents soon become alienated.

The Islamic Republic of Iran can be regarded as an example of how not to encourage the development of Islamic banking and finance. There, all banking has been shari'a- compliant since the Law on Interest Free Banking was passed in 1983. Bank clients have therefore no choice but to use the shari'a system. The banks, however, are state-owned and have little autonomy, even in determining what deposit and financing products to offer. They also do not have shari'a committees, the argument being that this is unnecessary as the law ensures shari'a compliance in any case.

The result has been that banking development has been slow, there is little financial innovation, and most Iranians do not have bank accounts. In contrast, on the Arab side of the Gulf and in Malaysia, where Islamic and conventional banks compete, Islamic banks have attractive products on offer and a growing client base. Al Rajhi Bank of Saudi Arabia has become the world's largest Islamic retail bank, and its range of services and delivery channels compares favorably with the best that Western banks can offer.

Islamic banking is here to stay, is an opportunity rather than a threat, and has an exciting future. Gaps remain -- there is no Islamic bank in Israel for example to serve its Muslim population. But if the Central Bank of Israel licensed such an entity it could create much goodwill. It might also encourage the Jewish population living there to question whether the operations of their own banks are compatible with religious teaching in Leviticus and Deuteronomy.

Ultimately, Islamic banking and finance is about the emergence of a distinctively Islamic form of capitalism that may co-exist and interact with Western, Chinese, Russian or any other capitalism. Such a development should be welcomed and facilitated, and not hindered or suppressed.

Rodney Wilson is Director of Postgraduate Studies at Durham University's Institute for Middle Eastern and Islamic Studies. He is co-editor of The Politics of Islamic Finance and co-author of Islamic Economics: A Short History. This article is part of a series on economics and Muslim-Western relations distributed by the Common Ground News Service (CGNews), and can be accessed at www.commongroundnews.org. Special thanks to Leena El-Ali.