Islamic Bank of Britain was launched in London, England in 2004. The bank has since been renamed to Al Rayan bank. Graeme Robertson | Getty Images

Islamic finance has traditionally been dominated by Muslim-majority countries in the Middle East and Southeast Asia. Now much of the rest of the world is getting in on it. Buoyed by the perception of more tranquil market conditions and an improving regulatory backdrop, issuance of Islamic debt by non-Muslim countries is set to climb to a three-year high in 2017, according to Dealogic data. Islamic financial products comply with Sharia, or Islamic law, and are based on the principles of risk and profit-sharing. Sharia prohibits earning interest on loans, and it bars funding activities involving alcohol, pork, pornography or gambling. The value of sovereign sukuk, or Islamic bonds, issued outside the Middle East and Southeast Asia by non-Muslim countries reached $2.25 billion in the 11 months through November, data by Dealogic showed. That's higher than 2016's $2 billion and more than double the $1 billion recorded in 2015.

Islamic finance's metamorphosis from a niche corner of global banking to a growing source of funding for rest of the world has been aided by a storied list of borrowers who have sold sukuk in recent years. The government of Singapore was one of the earliest non-Muslim entrants into the space, followed by the United Kingdom, Luxembourg and Hong Kong, which issued their first sukuk in 2014. More recently, African nations such as South Africa, Nigeria and Ivory Coast have made legal and tax changes to, among others, make it easier for borrowers to issue sukuk. Companies haven't been far behind, with the likes of Goldman Sachs and General Electric's GE Capital also selling Islamic bonds in the past few years. Chinese entities such as Country Garden and Beijing Enterprises Water Group have also issued Islamic bonds through their Malaysian subsidiaries in 2015 and 2017, respectively. The companies used those proceeds to finance projects in the Southeast Asian country.

The crisis that took place was a result of excessive speculation, which is harmful. Islamic finance has avoided such pitfalls. Ahmad Fuzi Abdul Razak secretary general, World Islamic Economic Forum Foundation

Experts said the global financial crisis spurred governments and companies to diversify their funding options. Islamic finance is seen as a more stable alternative to the conventional banking system and therefore appealed to borrowers still haunted by the gyrations in global bond and equity markets when the U.S. housing bubble burst, they added. In addition, the asset class has also attracted the attention of investors taking a more ethical approach to managing their money. "Heightened appeal for sustainable and responsible investing could also be driving the growth for Islamic finance due to the commonalities in values and shared principles," Ruslena Ramli, head of Islamic finance at Malaysian credit rating agency RAM, told CNBC.

Variety of categories

There are several categories of Islamic financial products, according to the World Bank: Mudaraba — a financial expert offers specialist investment advice to a customer and they share any profits at an agreed ratio.

Musharaka — an investment partnership in which two or more parties, such as the bank and its clients, share profits and losses from a pooled investment at an agreed ratio.

Murabaha— the financial institution buys the asset, such as a home or a car, and sells it to a client at a profit. Payment could be in a lump sum or in instalments.

Ijara— the financial institution buys the asset and leases it to a customer for a fixed rental payment. The bank retains the ownership but may transfer that to the client eventually.

Sukuk — similar to a bond but a sukuk buyer owns part of the underlying asset that is invested for returns. Sharia principles, which prohibit "speculative-type of businesses," ensured Islamic finance products were less volatile when global financial markets were rumbled during the debt crisis, said Ahmad Fuzi Abdul Razak, the secretary general of the World Islamic Economic Forum Foundation. "The crisis that took place was a result of excessive speculation, which is harmful. Islamic finance has avoided such pitfalls," he told CNBC.

Growing, but still small