Ratings agency Standard & Poor's (S&P) yesterday said that for the first time it assigned a rating to a Shariah fund, in a bid to boost transparency in an industry that has come under fire after some recent defaults.

S&P said it assigned a "AAf/S1+" fund credit and volatility rating to a Luxembourg-based, US dollar-dominated fund managed by European Finance House, a subsidiary of Qatar Islamic Bank, one of the Gulf's biggest banks by market value. The Islamic finance industry came under scrutiny in the aftermath of Dubai World's debt trouble and after some high-profile defaults from Middle Eastern issuers.

Investors raised questions about the structure of such Islamic deals and the risks it entailed linking it to the lack of transparency that prevails in the sector. Experts have said that even though the defaults are mainly a credit issue rather than an Islamic one, the perception of risk has dampened investors' appetite. "We see rating Shariah funds as a way to enhance credit-risk awareness in this asset class," the ratings agency said in a statement.

Strong economic growth combined with abundant credit available in the Gulf has helped fuel the Islamic finance industry in the past decade making the Middle East market the biggest, but also generating interest from Europe and the US.

"Revenue growth in this region has particularly benefited the asset management sector," S&P said. The Islamic finance industry is estimated to be worth around $1 trillion (Dh3.67trn) and is forecast by Moody's to hit $5trn over time.