Last month Vodafone Qatar, an affiliate of Britain's Vodafone Group, said it had switched all its financial activity to Islamic transactions. In the following eight trading days, its shares jumped 22 per cent in the heaviest turnover for over a year.
Across the Gulf, companies that have traditionally used conventional finance are considering whether to "go Islamic", by conforming to sharia principles such as bans on interest payments and monetary speculation.
The number of major firms taking the plunge is still small - a handful in the past six months - but they underline the growing depth and cost-effectiveness of Islamic finance after several years of rapid growth in the industry.
Traditionally, Islamic financial tools such as sukuk - sharia-compliant bonds - were more expensive to use than conventional instruments, because of their complexity and investors' lack of familiarity with them. The range of available sharia-compliant instruments has been much smaller than the array of conventional products.
But that has been changing; Islamic equivalents to conventional financial instruments have been developing even in relatively obscure areas such as short-term interbank lending, trade financing and swaps.
At the same time, costs have been coming down as transaction volumes increase, for the first time making it economically feasible for some companies to rely entirely on Islamic finance. In some cases, the appetite of cash-rich Islamic funds can make it cheaper for borrowers to issue sukuk than conventional bonds.
The narrowing of the cost disadvantage relative to conventional banking has helped to convince owners and managements of companies to adopt Islamic finance, said Ahmed Hatam Sultan, chief executive of Bahrain-based Tadhamon Capital, a subsidiary of Yemen's Tadhamon International Islamic Bank.
"I don't think other families would insist on Islamic banking unless they saw this industry was becoming mature enough, and the volume of transactions is there."
Tadhamon International is majority owned by the Hayel Saeed Anam Group, one of Yemen's largest family-owned conglomerates, which has a long-term strategy to use Islamic finance in all its dealings, said Sultan.
Companies can face a range of incentives and pressures to adopt Islamic finance. In some stock markets such as Qatar, Islamic investors with few options to choose from can reward sharia-compliant firms by piling into their shares.
That appeared to happen with Vodafone Qatar. The company's new policy included refinancing $330 million worth of debt and the decision is a long-term commitment by the firm, chief financial officer Steve Walters told Reuters.
"The move is permanent. Vodafone Qatar intends to amend its bylaws to include its adherence to sharia standards. This will affect all future commercial and financial activities."
Other companies have been encouraged by government efforts to develop local Islamic finance sectors. Dubai Cable Company (Ducab), equally owned by the emirates of Dubai and Abu Dhabi, began migrating its commodity hedging needs into Islamic equivalents in November 2013, at about the same time as Dubai launched a drive to become a top Islamic financial centre.
Over two-thirds of the company's hedging portfolio is now sharia-compliant.
"We would like to go 100 per cent, although this would require using OTC (over-the-counter) products, while the preference is for this to be done as an LME (London Metal Exchange) product," said Arif Choksy, Ducab's chief financial officer.
"We are currently exploring ways to develop an LME product, and we have looked at a few ideas with our counterparties."
Companies can also face social pressures to go Islamic. One example was Saudi Arabia's National Commercial Bank (NCB), the kingdom's largest lender, which last November completed a $6 billion initial public offer of shares, the largest ever in the Arab world.
Shortly before the offer, some members of the country's highest religious body, the Council of Senior Scholars, said buying the shares was not permissible because the bank had too many deals forbidden by Islamic principles on its balance sheet.
NCB responded by pledging to convert itself into a full-fledged Islamic bank within five years.
Islamic assets are estimated to account for only about a quarter of total banking assets in Gulf Arab economies, so for the foreseeable future, most companies in the region are likely to stick to conventional finance, while perhaps considering individual sharia-compliant deals on an opportunistic basis.
But as the Islamic financial industry continues to deepen and companies become familiar with it, more of them are likely to make the shift to full sharia compliance.
"There is definitely a lot of interest from corporates, but there needs to be a bit more marketing and awareness," said Ducab's Choksy.
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