Since the early 1980s, Islamic banking has developed into a multi-billion dollar business. The Western world is realizing that, even in its own cities, it is no longer a ‘fringe'business . The creation of the Islamic Development Bank (IDB) in Jeddah in 1975 was a landmark for Islamic banking. The IDB was the first development institution dedicated to the financial requirements of Muslim countries. The bank's articles of association stipulate that all its business should be conducted in accordance with Islamic Shari'a law. Its success can be measured by the Saudi government's decision in 1992 to double the subscribed capital of the IDB to $5.7bn, making it the largest intergovernment agency in the Muslim world.

Commercial Islamic banking took off in the 1970s when a number of new institutions were established in the Gulf, including the Dubai Islamic Bank (1975), the Kuwait Finance House (1977) and the Bahrain Islamic Bank (1979). However, the most significant developments took place in Saudi Arabia, aided by its huge economic infrastructure. One of the prime movers of such developments was Prince Mohammad Al-Faisal, whose ambition was to create a network of Islamic banks across the Muslim world - a process which saw the founding of the Faisal Islamic Bank in Egypt in 1977 and the Faisal Islamic Bank in Sudan in 1978. But it was Prince Al Faisal's Geneva-based Dar Al Mal Al Islami, founded in 1981, that brought Islamic banking to the attention of those Western bankers who, previously, had little or no knowledge of Islam or Middle Eastern countries. The Geneva office of Dar Al Mal is now the centre of a network of 43 branches in 20 countries with assets under management in excess of $3bn.

The assets of Islamic banks incorporated in the Middle East rose from $4.4bn in 1985 to $15.7bn in 1994, although total assets controlled by Islamic financial institutions, including assets under management and the activities of banks based outside the Middle East, are estimated to be in the order of $80-$100bn. Compared with conventional banking this is a relatively small sum, but the overall demand for Islamic banking products is probably much greater than banks have so far been able to tap.