The polarisation over secularism and religion risks reducing Turkey's chances of cashing in on Gulf oil wealth, analysts say, as Turkish government plans to legalise so-called Islamic bonds remain mired in delay.

The legislation, drafted amid a worldwide boom in the Islamic bond market, was supposed to be sent to parliament during the legislative year that began last September.

It would have enabled investors to take a cut of the cashflow of projects financed by the bonds, thereby avoiding the interest payments on traditional bonds that most Islamic scholars consider unacceptable.

But with MPs' summer holidays starting this week, the project has been shelved.

Banking expert Saduman Okumus blames the delay on the controversial nature of Islamic finance in this staunchly secular Muslim country.

"Those who say money has no colour don't know Turkey", she says. "It's risky for a religious-minded government like the one in power today to be seen pushing this sort of legislation through."

Worth around $300 billion (€239 billion) worldwide, Islamic finance remains marginal here, with "participation" (interest-free) banks making up 3 per cent of the banking sector, compared to over 10 per cent in Malaysia and 22 per cent in Kuwait.

Much of the disparity is due to the pragmatism of Turkish Islam, analysts say. Efforts to expand participation banks have also been undermined by economic instability. But the imbalance also reflects political preferences.

Unsurprisingly for a country that set its heart on the West 150 years ago, around 70 per cent of exports go to European Union countries.

And just as Turkey's founders saw the Middle East as a morass of religious ignorance, so some Turks today remain convinced that "green capital" - as they call investment from their Muslim neighbours - is being used to finance an Islamic assault on the secular regime.

Such fears were partially responsible for the crippling taxes imposed until last year on Islamic banks. They also slowed preparation of the Islamic bond bill.

While investment decisions by Islamic banks elsewhere in the world are vetted by a board of religious scholars for their compliance with Islamic law, such a procedure would be unconstitutional in Turkey.

"Drafting took us two years," says Osman Akyuz, head of the Turkish Participation Banks Association. "We finished our work just in time." He's referring to the soaring petrol prices believed to have enriched Middle Eastern investors to the tune of $200 billion over the past 18 months.

The new wealth has already begun to reach Turkey, with a Saudi-run consortium paying $6.5 billion last year for a controlling share of Turkey's state telecommunications company.

Controversially, Gulf companies are also active in the real estate sector. If Dubai International Properties gets its way, Istanbul will soon have two 300-metre skyscrapers worth $500 million, with a further $4.5 billion's-worth of investment to follow.

Adnan Yousef, chief executive of the Bahrain-based Albaraka bank, says Turkey has always been an important market for Gulf investors.

"What has changed is that in the past it was only big players who invested," he says. "Now everybody is interested." Hence the importance of Islamic bonds, say its proponents. Unlike real estate and privatisations, bonds offer immediate gains to investors of all sizes.

"It's a simple matter of realism", says one senior Turkish banker. "Turkey may continue to make easy money off Europe, but diversity is vital if you want to maximise profit."

Despite the deepening rift between religious and secular-minded camps, most analysts believe that Turkey can put its ideological qualms behind it.

"The rest of the world has been pragmatic enough to get in on the action," says Saduman Okumus, referring to western banks' leading role in today's expansion of Islamic banking. "Turkey can and should do the same."

Chairman of Musiad, a businessmen's association strong in conservative Anatolia, Omer Bolat is sceptical.

"If the disagreements were purely intellectual, we could sort them out", he says. "But the rhetoric about secularism is an excuse to guard the economic status quo. The big [ Istanbul-based] conglomerates don't want the newcomers to get their slice of the cake."