Islamic assets held by commercial banks are set to hit $1.8 trillion next year, partly spurred by growth in the Gulf region, according to research by Ernst & Young.
Global Islamic banking assets stood at $1.3tr last year, but "record robust growth" in the sector is forecast to see that rise by almost 40 per cent by 2013.
"This forecast is significantly higher than some of the earlier industry estimates," the accountancy firm said.
The top 20 Islamic banks - which between them hold over 57 per cent of global Islamic banking assets - have registered growth of 16 per cent per annum in the last three years, Ernst & Young said.
However, the profitability of the Islamic sector still lags behind that of conventional banking.
Saudi Arabia is the biggest market for Islamic banking followed by Malaysia and UAE, according to Ernst & Young's World Islamic Banking Competitiveness Report 2013.
Banks in Saudi Arabia had an estimated $207 billion of Islamic assets in 2011, followed by Malaysia with assets of $106 billion and the UAE with $75 billion. Emerging markets in Islamic banking include Indonesia, Egypt, Iraq and Libya, the report said.
Ernst & Young said that the leading return on equity for Islamic banking was only 11.6 per cent, against 15.3 per cent for the conventional banking sector, between 2008 and 2011.