Gulf governments may take bigger stakes in Islamic financial companies to gain more control over the industry as demand soars for investments and financial services complying with Islamic law during an oil boom, Moody's Investors Service said.
Governments in the UAE, Qatar and Saudi Arabia have set up new Islamic banks to company with Islamic law to ensure they retain an ethical image, the credit rating agency said.
The $700-billion (Dh2.57trn) Islamic finance industry has the potential to surge to as big as $4trn, it said.
"It is as if governments do not want to see the Islamic banking industry over-dominated by the private sector, in order to keep the whole thing under control," the ratings agency said in a research report.
"If governments have an increasing share of ownership in Islamic financial institutions (IFIs), the risk of consumers perceiving an IFI as insufficiently compliant with Shariah is somewhat mitigated," it said.
Growth of Islamic financial institutions (IFIs) has been supported as a more than five-fold rise in oil prices since 2002 drives demand for products, including Islamic bonds and loans to finance major infrastructure projects, Moody's said.
"Many new IFIs have clearly made their ambitions public; with very large capital bases right from inception, their vocation is immediately international," it said. "The larger newcomers have that ambition, beyond the natural borders of their respective domestic markets, into new territories where Islamic finance is not yet entrenched."
Last year, Dubai opened Noor Islamic Bank – in which the Dubai government owns 50 per cent – with the aim of creating the world's largest Islamic bank within five years. Abu Dhabi this year started Al Hilal bank with Dh1 billion of capital, while Ajman set up Ajman Bank to tap growing demand for Islamic retail products.