Prime Minister David Cameron has announced that the UK will become the first non-Muslim country to issue an Islamic bond.
At the World Islamic Economic Forum (WIEF) in London, he also announced plans for a new Islamic index on the London Stock Exchange.
It is intended to attract more Islamic investors by making it clearer which companies match their criteria.
Under Islamic rules, no interest on business dealings can be charged.
Transactions must also be based on a real trade or business activities and they must not involve anything forbidden under Sharia law, such as gambling or alcohol.
Mr Cameron believes that Islamic finance is a good opportunity for the UK’s financial services industry as Islamic investments have soared by 150% in the past seven years and are expected to be worth £1.3 trillion next year.
“I don’t just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world,” he told delegates of the WIEF.
“There are some countries which naturally look inwards, pull up the drawbridge and refuse to recognise that the way the world is changing affects their future success. But Britain will not make that mistake,” he added.
The Treasury hopes to launch an Islamic bond – called a sukuk – worth £200m as early as next year. It will be structured to bring in a fixed return from a tangible asset or service, and without charging interest, in accordance with Islamic financial principles.