Islamic finance has traditionally been dominated by Muslim-majority countries in the Middle East and Southeast Asia. Now much of the rest of the world is getting in on it.

Buoyed by the perception of more tranquil market conditions and an improving regulatory backdrop, issuance of Islamic debt by non-Muslim countries is set to climb to a three-year high in 2017, according to Dealogic data.

Islamic financial products comply with Sharia, or Islamic law, and are based on the principles of risk and profit-sharing. Sharia prohibits earning interest on loans, and it bars funding activities involving alcohol, pork, pornography or gambling.

Islamic finance’s metamorphosis from a niche corner of global banking to a growing source of funding for rest of the world has been aided by a storied list of borrowers who have sold sukuk in recent years.

The government of Singapore was one of the earliest non-Muslim entrants into the space, followed by the United Kingdom, Luxembourg and Hong Kong, which issued their first sukuk in 2014. More recently, African nations such as South Africa, Nigeria and Ivory Coast have made legal and tax changes to, among others, make it easier for borrowers to issue sukuk.

Companies haven’t been far behind, with the likes of Goldman Sachs and General Electric’s GE Capital also selling Islamic bonds in the past few years.

Chinese entities such as Country Garden and Beijing Enterprises Water Group have also issued Islamic bonds through their Malaysian subsidiaries in 2015 and 2017, respectively. The companies used those proceeds to finance projects in the Southeast Asian country.

Experts said the global financial crisis spurred governments and companies to diversify their funding options. Islamic finance is seen as a more stable alternative to the conventional banking system and therefore appealed to borrowers still haunted by the gyrations in global bond and equity markets when the US housing bubble burst, they added.

“Heightened appeal for sustainable and responsible investing could also be driving the growth for Islamic finance due to the commonalities in values and shared principles,” Ruslena Ramli, head of Islamic finance at Malaysian credit rating agency RAM, told CNBC.

Source: CNBC