What pays no interest but is expected to grow in value from $1 trillion (£480 billion) now to $2.8 trillion by 2015? The answer – the global Islamic banking business - is central to Bahrain’s strategy for re-establishing itself as a regional financial hub despite surging competition from Dubai and Qatar.

Five years after launching a closely watched political reform process, Bahrain is quietly nurturing its booming Sharia-compliant financial services sector to make up ground lost to its rivals in the past decade. “I think it’s fair to say we were resting on our laurels,” Sheikh Mohammed bin Isa Al Khalifa, head of the kingdom’s Economic Development Board, told The Times.

Like the UAE and Qatar, to which it will soon be linked by a causeway, Bahrain is keen to promote growth in everything from international investment banking to tourism. But it lacks Dubai’s breakneck ambition and has no equivalent of Qatar’s gas reserves: it was the first Gulf state to exploit its oil and will be the first to run out of it.

Islamic banking is an obvious niche to fill. Thirty-three of Bahrain’s 400 financial institutions specialise in Shar-ia-compliant mortgages, insurance and leasing schemes, bonds and other investments with no link to the tobacco, alcohol and gambling industries. Since the Koran outlaws interest, these instruments yield income in the form of agreed profit margins or “administrative fees”.

London and Riyadh easily beat Bahrain in terms of share of the Islamic banking market (Bahrain’s is currently worth $10 billion), but the kingdom is a dominant source of highly specialised Sharia compliance expertise and its central bank’s record for transparency and light-touch regulation is the best in the region.

One slogan devised by the Economic Development Board translates roughly as: “David Beckham does not have a house in Bahrain”. The implicit comparison with Dubai is clear. “Our aspirations are just as high,” said Sheikh Mohammed, “but we want to make sure our developments serve all who live in Bahrain.”

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