By Joseph Sipalan and Rozanna Latiff

KUALA LUMPUR (Reuters) - Muslim nations need to do more business among themselves, trade in each other's currencies and keep up with non-Islamic countries to stop being left at their mercy, their leaders said on Thursday at a summit boycotted by Saudi Arabia.

The Saudi-based Organization of Islamic Cooperation (OIC) said on Wednesday it was against the interests of the Muslim world to hold meetings outside the organization, which has for decades acted as the collective Islamic voice.

Both Malaysian Prime Minister Mahathir Mohamad and Turkish President Tayyip Erdogan have been frustrated by the OIC's hand-wringing and failure to take action in support of Muslim causes.

Mahathir said the Kuala Lumpur summit, which ends on Saturday, was aimed at understanding why Islam, Muslims and their countries were "in a state of crisis, helpless and unworthy of this great religion".

"While we may not have been able to fully dissect all that had caused our pain and anguish, we are mostly in agreement that it is our inability to keep up with the progress and development of the non-Muslims that has left us in the lurch," he said.

"Due to that, Muslims the world over suffer and as many are dependent on the mercy and charity of the non-Muslims. To my mind, we have no choice but to develop and progress as fast as possible."

It was unclear to what extent the leaders would broach the major crises afflicting Muslims, ranging from the age-old disputes in the Middle East and Kashmir to conflicts in Syria and Yemen, through to the plight of persecuted Rohingya Muslims in Myanmar and millions of Uighur Muslims held in camps in China's Xinjiang region.

A question from the audience on the treatment of Uighurs, put to the dais that included Mahathir, Erdogan and Iranian President Hassan Rouhani, was ignored.





DIFFERENCES WITH OIC

Without mentioning the OIC by name, Erdogan said the biggest problem that platforms bringing the Islamic world together faced was a lack of implementation.

Story continues

"If we still haven't made any progress regarding the Palestinian cause, if we still can't stop the exploitation of our resources, if we still can't say 'stop' to the fragmentation of the Muslim world over sectarianism, that's why.”

Some analysts also suspected that Saudi Arabia's reluctance to attend stemmed from fear of being diplomatically isolated by regional rivals Iran, Qatar and Turkey.

Though Saudi-ally Pakistan also opted to stay away, it was agreed that Malaysia, Turkey and Pakistan would jointly establish a communication center to combat Islamophobia.

Malaysia and Turkey formalized separate agreements to pursue research and development in aerospace and defense. Malaysia also struck a deal with Qatar to double the Southeast Asian country's milk production to 50 million liters annually.

Erdogan also called for a reconstitution of the U.N. Security Council to represent the 1.7 billion people of the Islamic world. China, the United States, France, the United Kingdom and Russia make up the permanent members of the council.

"The world is bigger than those five," he said, adding there was also a need for Muslim countries to trade in their own currencies.

Iranian President Rouhani also called for Muslim countries to enter preferential trade agreements using each other's currencies and to create a special mechanism for banking and financial cooperation.

Hit by U.S. sanctions that make it difficult to get Western insurers to cover Iranian exports, including oil, Rouhani also proposed setting up a transport insurance mechanism exclusively for Muslim nations.

"The Muslim world should be designing measures to save it from the domination of the United States dollar and the American financial regime," Rouhani said.





(Additional reporting by Asif Shahzad in Islamabad and Stephen Kalin in Riyadh; Writing by Krishna N. Das; Editing by Simon Cameron-Moore and Nick Macfie)