Jonathan Kent BBC News reporter in Kuala Lumpur

The heads of the central banks of eight Muslim countries have launched a new body to regulate Islamic financial institutions.

Malaysia, Indonesia, Iran, Saudi Arabia, Pakistan, Sudan, Bahrain and Kuwait are all represented at the Islamic Financial Services Board.

The new body will set common standards which member countries will be encouraged to adopt and promote financial services that respect Muslim beliefs.

It will not specifically address concerns that Islamic banks have been used to channel money to militant groups.

But analysts say it will set tougher rules for accounting and transparency and that will make money laundering more difficult.

Fast growth

The inauguration is being hailed as marking the coming of age of international Islamic banking.

Around a fifth of the world's population is Muslim, but investments in financial services that meet with Islamic Shari'ah law are estimated at less than $200bn.

Private wealth in the Middle East alone is put at four times that figure.

Launching the new board, the Malaysian Prime Minister Dr Mahathir Mohamad said the Islamic finance sector has great potential.

"Although the size of the international Islamic finance is still small, it has expanded significantly at 15% per annum," he said.

"The potential for growth is enormous, given not only the huge wealth of the global Muslim community but also the interest shown in the international financial markers in this form of financial intermediation."

Strict rules

Central to the concept of Islamic banking is Islam's prohibition of Usury.

In effect this means that charging interest, or making loans with the promise of a fixed return is forbidden.

So is making excess profit.

Banks must instead take a share of the profit or loss made by those they lend to.

Supporters say this makes them less prone to lend rashly and less ready to demand their money back when times get tough for borrowers.

Nor can Islamic funds invest in products that would be considered unethical by Muslims; alcohol, gambling, pornography, tobacco or weapons.

Those behind the launch of the IFSB hope that by promoting good practice and stability in the sector it will give Muslims the confidence to invest their wealth in a way that reflects Islamic values.