David Cameron has announced plans to encourage investment in the UK by Muslim countries, saying he wants to make London “one of the greatest centres for Islamic finance anywhere in the world”.

Politicians and business leaders gathered in the capital for the ninth annual World Islamic Economic Forum – the first time the major event has not been held in a Muslim country.

The Prime Minister appeared on stage alongside a number of world leaders, including King Abdullah of Jordan and the Sultan of Brunei.

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Among the measures unveiled was a plan from the Treasury to issue an Islamic bond - or sukuk - worth around £200 million. It would issue fixed returns based on the profit made by a named asset, allowing for Muslims to invest without breaking Islamic laws forbidding interest-bearing bonds.

A “world first” set of indices at the London Stock Exchange to help investors identify faith-compliant firms and projects was also announced as well as a £4.5 million boost to a small business growth fund.

The global market in Islamic investments is rapidly expanding, rising by 150 per cent since 2006 and expected to be worth £1.3 trillion next year.

Mr Cameron said Britain had already taken steps to ensure Muslims were not discriminated against - such as ending “double tax” on Islamic mortgages and introducing alternative forms of student and start-up loans to comply with a ban on interest payments.

It already had more Islam-compliant banks than any other Western country and many law firms and university courses centred on the subject, he said.

But he said that his ambition was for the country to compete with finance centres such as Dubai and Kuala Lumpur - not just other non-Islamic capitals.

“Already London is the biggest centre for Islamic finance outside the Islamic world,” he told the gathering of 1,800 political and business leaders from over 115 countries.

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“But today our ambition is to go further still.

“Because I don't just want London to be a great capital of Islamic finance in the Western world.

“I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world.”

He went on: “When Islamic finance is growing 50 per cent faster than traditional banking and when global Islamic investments are set to grow to £1.3 trillion by 2014 we want to make sure a big proportion of that new investment is made here in Britain.”

Dismissing criticism of increasing foreign ownership in the UK - including “taking over our football clubs” - he said: “Foreign investment creates wealth, jobs and growth. And far from weakening our industrial base, that investment actually strengthens it.

Islamic investment in projects from the huge London Gateway port and the redevelopment of Battersea power station to Arsenal's Emirates stadium and offshore wind turbine were proof it was “already fundamental to our success”, he added.

There will also be new indices - announced by the London Stock Exchange - to help investors identify suitable firms and projects.

“Again the City of London is leading the way - this time not just in Europe, but right across the world,” he said.

“These not only identify companies that meet traditional Islamic investment principles but also use some of the most advanced techniques on the planet to screen financial ratios and enable investors to identify opportunities with lower volatility.

“For example, by ensuring that debt and cash fall within strict limits as a proportion of a company's total assets.

“In plain language, this means the creation of a new way of identifying Islamic finance opportunities - a world-leading Islamic Market Index.

“It is another global first for the City of London and yet another reason why London can be one of the great centres of Islamic finance anywhere in the world.”

Mr Cameron said the Government was joining forces with the Shell Foundation to create a £4.5 million grant to boost the work of the Nomou initiative, a growth fund that provides skills and finance to small businesses across the Middle East and the Gulf looking for both a financial and a social return on their money.

Other leaders at the event included Afghan president Hamid Karzai and Pakistan's prime minister Nawaz Sharif, who are holding talks with Mr Cameron at 10 Downing Street this afternoon.

Additional reporting by PA