New York will play host to two major conferences on Islamic finance this month, events likely to underscore that the city is a bit player in this vast and growing market sector — particularly when compared to London.

The British capital is New York’s chief rival as a global financial hub, and it has a big head start in the race to attract the billions of investment dollars from the oil-rich Middle East. This is critical because Islamic finance — banking and investing in compliance with Islamic religious law, known as Sharia — is perhaps the fastest-growing sector of the global financial services market. Islamic institutions around the world hold assets estimated at more than $300 billion, with another $400 billion in financial investments, according to a 2006 study by the accounting firm KPMG. Islamic finance is growing at a rate of about 15% a year, the study found. A consulting firm, McKinsey & Co., predicts growth of at least 20% in this sector over the next five years.

“There is not much value added that New York can bring to the party,” a Harvard Business School professor emeritus who is an expert on Islamic finance, Samuel Hayes, said. “This is not where they come to look for products,” he added, referring to Muslim investors.

Over the next three weeks, two conferences will attempt to change this. Shariah Capital, an Islamic financial advisory firm based in Greenwich, Conn., is sponsoring a conference October 23–24 titled “Islamic Finance in North America: Accessing Innovative Islamic Finance Opportunities” at Manhattan’s 3 West Club. A conference company, Financial Research Associates, is holding a second event, the “Islamic Finance Summit 2007,” at the Helmsley Hotel in Midtown on October 29.

Sharia-compliant finance firms do not collect interest on investments, eschew borrowing money, and do not short-sell stocks. There is also a prohibition against investing in “sin stocks,” including companies that promote gambling, pornography, or alcohol.

London firms have successfully attracted Islamic money by catering to these rules. London-based law firm Clifford Chance advised on $18 billion worth of Islamic transactions last year and, at a British conference on Islamic finance last year, Gordon Brown, then chancellor of the Exchequer, said he wanted to make Britain “the gateway to Islamic finance and trade.”

Despite its difficulty in attracting Islamic financial business, America has taken some encouraging steps, including the U.S. Treasury Department’s appointment of a scholar-in-residence on Islamic finance in 2003. Since 1999, Dow Jones has begun tracking a number of indexes of Islamic markets that screen stocks based on Sharia criteria, even employing a dedicated board of Sharia scholars. In addition, Islamic mortgages, one of the first products to gain acceptance in America, have been growing since they first became available a decade ago, and in recent years, even Freddie Mac and Fannie Mae have been buying them.

Still, the Islamic mortgage market has not grown as quickly as some observers predicted. In fact, these mortgages remain just a fraction of the more than $2 trillion annual residential mortgage market. In December of last year, HSBC Bank USA, which had written some $50 million in Islamic mortgages over the past six years, stopped offering them, according to the Real Deal, a real estate magazine.

Now, in light of the recent subprime mortgage credit crisis, it could be even tougher for New York to catch up with London.

“The recent turmoil in the financial markets will probably slow down this trend” of new Islamic product offerings in America, a professor of Islamic banking and finance at Tufts University, Ibrahim Warde, said. “People have quickly become more wary of financial innovation.”

This month’s conferences, however, could be a turning point.

“Wall Street is the go-to place on the capital markets,” the global director of Dow Jones’s Islamic Market Group, Rushdi Siddiqui, said. “As regards New York, it’s just a matter of time.”