Scotland's fund industry is meeting with Finance Secretary John Swinney today in response to an initiative by the Islamic Financial Council (IFC) to create an "ethical finance hub" in Edinburgh.

Following last week's announcement by the UK government of new bond issuance powers to be devolved to Scotland, the IFC and solicitors Tods Murray have said Scotland could attract £100 million to £200m from Middle East investors to finance public projects.

The promoters say an ethical finance hub would bring together government, financial services, academia and the third sector to facilitate "commercial investment, thought leadership, and the development and testing of ethics-based models of banking".

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Around 50 firms are taking part in the event at the Scottish Parliament including Standard Life Investments, RBS, Alliance Trust, Green Investment Bank, Kames Capital and Deloitte.

Graham Burnside, chairman of Tods Murray and an IFC board member, said: "We have seen the ethical finance debate gain real momentum in the last 12 months. We know the financial services industry is fully behind the proposal and there is no doubt that Scotland is now well placed to develop the world's first centre for the development and promotion of ethical finance, which could in turn stimulate the development of innovative financial products."

He added: "With news that Scotland will shortly be able to issue its own bonds, this could offer a significant opportunity to tap into major funding sources in the Islamic world where we know there is already interest in investment in Scottish capital projects."

The IFC has been lobbying the Scottish Government since December 2010, when The Herald revealed that Shariah-compliant bond financing was being proposed as a funding option for the new Forth crossing. In 2012 the council and Tods Murray created the Ethical Finance Forum to discuss the notion of a "more prudent and socially aware banking system which could facilitate business amongst SMEs and enhance Scotland's financial reputation".

Omar Shaikh, director at the Islamic Finance Council, said: "We see Islamic finance as a subset of ethical finance which has contributed significantly to attracting investment into the UK. Billions have been invested into London using Islamic finance and we have asked Scottish Government to formally investigate how Scotland can also benefit from such investment."

Last week the Treasury said the Scottish government would be able to sell Scottish bonds in international capital markets when it gains the power to borrow from April 2015. It also warned its borrowing limit would remain at £2.2 billion, and bond issuance would carry extra costs compared with the current route of the UK National Loans Fund.

Mr Swinney said: "It is essential we seek out new opportunities to diversify our financial services industry, so the industry can continue to prosper and grow." He added: "Providers of ethical finance have the potential to position themselves as a viable alternative to mainstream institutions."

However, Mr Burnside said: "The opportunities for securing international funding for Scotland, particularly from the Middle East where there is a real appetite to invest, have been under discussion for a number of years now.

"Although borrowing powers from 2015/16 are still capped at £2.2bn... the use of these powers could offer a way forward for large scale infrastructure and renewable projects, which is an area of real interest to Gulf investors and one which it is generally acknowledged is in search of funding."