MIKE Ross, the former chief executive of Scottish Widows has teamed up with two other insurance heavyweights to launch an Islamic insurance business backed by Middle Eastern investors.

Together with Dennis Holt, the ex-head of AXA UK, and Peter Nowell, a former director with Alba Life, Ross wants to cash in on a growing market in insurance compliant with Sharia Islamic law. They believe the business has the potential to float on the stock market.

British Islamic Insurance Holdings will provide finance to a market of two million Muslims living in Britain. Sharia law forbids making money from money - such as charging interest. Wealth can be made only through the trade of assets and investments.

Ross said British Islamic Insurance Holdings was in the "early stages of development" and the company was working on strategy, recruiting management and securing a regulatory licence from the Financial Services Authority.

The business has three executive directors - Abdulaziz Hamad, a Saudi Arabian-based investor, Abdulraham Ahmed Yousif Abdulmalik, the Bahrain-based chairman of the Islamic Bank of Britain, and Syed Mohammed Nadeem Mujtaba, a Bahrain-based businessman.

Ross said: "A holding company has been set-up with the aim of a Sharia compliant insurance business operating initially in the UK. I am one of three UK-based non-executive directors. Our role is to provide value through our experience of the UK market.

"I am a passionate believer in insurance. There's a market that's developing in Sharia compliant and UK law compliant insurance. If we can play a part in helping to bring insurance products to the Muslim population, that's an interesting thing to be involved in."

Ross, who lives in Edinburgh, left Scottish Widows in 2003 and has since taken a series of directorships.

Holt is also a former director at the Association of British Insurers and Lloyds TSB.

Islamic Capital Partners, a Pakistan-based investment business, has invested in British Islamic Insurance Holdings.

According to its website, the Karachi-based company invested £20m in June and described the BIIH as: "A pioneering project" initiated by its associates Gulf Ventures Corporation. It adds the plan is for the business to float on AIM in a year's time.

Ross said: "Gulf Ventures Corporation are involved in terms of project promoters and the strategic development of the business. We want to develop the business and at some time we may well seek a listing, but that's really some way down the track."

Many Muslims in Britain refuse to use established banking services because they conflict with Sharia law.

High street banks have spotted the potential of this market and many traditional retail banking services are available that are Sharia compliant.

In a survey last year, Datamonitor said demand for Sharia compliant mortgages could yield up to £4.5bn in advances by 2006.

According to British Islamic Insurance Holdings documents, the firm's objectives include buying, holding and selling "any shares or stock, Islamic bonds or other Islamically compliant securities or obligations."