The central banks of Malaysia and the United Arab Emirates signed a pact on Friday to foster closer economic ties between the two countries, including in the area of Islamic finance.

The pact signals stronger cooperation between the two financial hubs, which held a combined $181 billion in sharia-compliant banking assets as of 2011, despite growing competition for a share of Islamic business.

Governors of both central banks signed the memorandum of understanding on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington.

It follows stronger cooperation between the Islamic finance centres, in particular the Gulf and Southeast Asian regions, despite traditional differences in the design and implementation of sharia-compliant financial products.

Both central banks are key backers of the Malaysia-based International Islamic Liquidity Management Corp, an institution tasked with addressing a shortage of interbank lending products for Islamic banks.

Last year, Malaysia's securities commission revised its guidelines for screening equities that qualify for Islamic investment, moving them closer to the approach used in the Gulf.

The global Islamic banking industry is expected to tip $1.3 trillion by year-end. It follows religious principles such as a ban on interest and pure monetary speculation. - Reuters