And although it has been present in sectors of the modern global market since the 1940s - and for centuries before that amongst Arabian tribes - its true commercial significance did not emerge until the late 1990s.

But once it did emerge, it did so with a bang.

In the 14 years since 1996, global Islamic assets have flourished from around $US100 billion ($114 billion) to more than $900 billion, and they are predicted to top $1 trillion this year.

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Locally, however, despite the increasingly lucrative status of Islamic finance in international financial hubs such as London, Hong Kong and Singapore, Australia still lags behind comparable economies when it comes to attracting and facilitating Islamic finance.

Understanding Islamic Finance

According to practitioners at the forefront of this fledgling practice area, part of the reason for Islamic finance's slow infiltration is a general lack of understanding about what Islamic finance actually is.

Gerard Kennedy, partner at Macpherson Kelley Lawyers in Melbourne, believes that despite common conceptions, Islamic finance closely resembles Western finance, albeit with a few key differences.

"I have actually established that they are very similar," he says. "People think there are major differences, but it is just a myth."

Kennedy explains that the foundations of Islamic finance lay in the fact it is forbidden to invest in transactions surrounded by uncertainty or those linked to what are perceived to be immoral practices and products under Sharia law, such as prostitution, tobacco, alcohol and gambling.

Further, lenders are forbidden from charging interest.

Like Kennedy, Leon Loganathan of Ward Keller Lawyers in Darwin has also found that misconceptions have traditionally surrounded Islamic finance.

"In the past there was limited awareness. One of my clients once asked me if he needed to convert to Islam in order to qualify for Islamic finance," he says.

"However, things are changing and the Australian Government [has gone] on record about its commitment to bringing Islamic finance to this country, [demonstrating] an increased awareness, both in the public and private sectors, about this growth area."

Fertile ground

Despite the fact Islamic finance is yet to really take off on our shores, practitioners say Australia is not only well-placed strategically to develop a strong Islamic finance presence, but economically as well.

"Australia's economy is so well suited to Islamic finance, as compared to Hong Kong or Singapore, which are really just financial hubs and don't have much of a real economy," says Mallesons partner Alex Regan.

"There is a lot of infrastructure being built, a lot of mining projects and other commodity sectors, and a very large real estate sector as well."

Loganathan agrees: "Given our proximity to Asia, including the fact we live next door to Indonesia - a country with a population over 227 million and also the largest Muslim population in the world - it makes sense for us to look at developing a stream of financial products that will allow new capital inflows into the country."

Legislative hurdles

Despite a favourable economy and distinct geographical advantage, the market for Islamic finance is still very much in its growth stages, with progression in the area proving to be painfully slow.

"Australia should be one of the top nations in attracting Islamic investment," says Regan.

"Other countries have leaped ahead because they have enacted laws to allow for Islamic finance to effectively be put in place [and] on an equal footing with conventional finance instruments, like normal loans or corporate bonds. Australia is only just now starting to turn its mind to that."

According to Regan, one of the primary hurdles lies in the fact that many Islamic finance projects involve the acquisition of tangible assets which must change hands on numerous occasions in order for the correct structure to be put in place, thus potentially attracting capital gains tax, withholding tax and stamp duty on multiple occasions.

And despite an apparent willingness for the Australian Government to open its doors to Islamic finance, the legislative framework which would allow a favourable entry into the market has not yet been put in place on a national scale. "The Australian Government will most likely come to the party over the next couple of years, but at the moment there is a cloud over this tax situation which many parties are working to resolve," says Kennedy.

"This is where Australia wants to go. It wants to get major investment into the country."

Foundations for the future

Despite the prevailing difficulties currently associated with implementing Islamic finance, practitioners are busy laying the foundations for the creation of an Islamic finance friendly market.

"The Australian Financial Markets Association working group [has] prepared various papers over the past 18 months and sent them across to various government agencies to see if we can get the relevant tax changes pushed through as soon as possible," says Regan, who is part of the working group.

"We are trying to increase people's knowledge of the area and what needs to be done in Australia to put it on a competitive footing with places like Hong Kong, Singapore, Malaysia and the Middle East."

And once the structure is in place, Loganathan believes there will be no stopping it.

"The global financial crisis saw lending by traditional banks in Australia become very restrictive. Developers in particular are finding it extremely difficult to secure funding for housing projects, which is ironic, given that we're constantly told that demand for housing is outpacing supply, and has been for sometime," he says.

"It's going to be a growth story. I think everyone is looking for a fresh approach."

Kennedy is also optimistic, though proffers a more cautious outlook: "The future is not known yet. The only thing that is certain is that the building blocks are already in place."