Gulf sales of Islamic bonds overtook those in Malaysia for the first time, Moody's Investors Service said, rising to $13.2 billion so far this year as the two regions vie for primacy in the Islamic finance industry.
Sales by governments and companies in the UAE, Bahrain and four other Gulf oil producers accounted for 55 per cent of the global total for bonds that comply with Islamic law to the end of August.
That compared with $9.7 billion sold in Malaysia, Moody's Middle East and Islamic Finance analyst Faisal Hijazi told Reuters.
"The Middle East, mainly the Gulf, is progressing quickly to become the global leader in the provision of sharia compliant sukuk structures and products," Hijazi said.
Malaysia, with a majority Muslim population of 26 million, has traditionally led the global Islamic finance industry in sales, regulation and standardisation.
Islam, the religion of about 1.3 billion people, forbids the receipt of interest, equating it with usury.
Though Malaysia has fallen behind in sales of sukuk, it still leads in total sales.
More than 60 per cent of the world's outstanding Islamic bonds were denominated in Malaysian ringgit at the end of July, according to Moody's.
"The Malaysian regulatory authorities are actively addressing ... issues to maintain their lead," Hijazi said.
Malaysia, Bahrain and Dubai are vying to be centres for Islamic finance.
Bahrain says its central bank was the first in the world to develop and sell sukuk, while the Dubai International Financial Exchange says it lists sukuk worth more than $13 billion.
Dubai government-owned property developer Nakheel Group last year sold $3.52 billion of sukuk, the biggest Islamic bond sale ever.
"One factor that is limiting sukuk issuance in Malaysia from growing substantially and acquiring a global investor base is the fact that most issues out of Malaysia are denominated in Malaysian ringgit due to tax incentives," Hijazi said.
While Malaysia's sukuk market is mainly domestic, foreign investors have bought as much as 80 per cent of recent Gulf sales which are generally denominated in dollars.
Global sales of sukuk have surged during the past year on greater demand from Muslims seeking investments that comply with their beliefs and Western and Asian investors looking to tap Gulf economies that are booming.