By Barney Gimbel

(FORTUNE Magazine) – LOEHMANN'S DEPARTMENT STORES don't sell alcohol, charge interest, allow gambling, produce tobacco, make unwholesome entertainment, or deal with pork. Neither do Church's Chicken or Caribou Coffee. While those are traits you wouldn't automatically associate with retail success, they matter a lot to the companies' new owner, Bahrain's First Islamic Investment Bank.

A string of 14 deals over the past six years has quietly made First Islamic the first (and biggest) Middle East-based investment firm in the U.S. Through its American subsidiary, Crescent Capital Investments, which opened in Atlanta in 1997, First Islamic has poured about $2 billion into the U.S. market. (First Islamic is one of about four private-equity firms conducting investments in the U.S. in accordance with shari'a law, which forbids usury or interest.)

"We were thinking of acquiring this other fast-food chain recently until we realized they served bacon cheeseburgers," says Charlie Ogburn, the executive director of Crescent Capital. "That's the challenge of doing what we do." Ogburn, an Episcopalian from Kentucky who left a major investment bank to head up Crescent in 2001, points out that Loehmann's was an acceptable retail target only because it didn't have an in-house credit card operation. "Previously investors could either use Western banks and turn a blind eye to their beliefs or invest in Islamic banks and get exceedingly low yields," he says. "We make a 20% yield without ignoring investors' faith."

Doing that means some creative financing. Take the Loehmann's deal. Rather than do a leveraged buyout (which would involve borrowing money with interest, a big no-no in the Koran), Crescent instead bought Loehmann's assets and leased them back to the company. "It's a classic Islamic deal," says Isam Salah, an attorney at King & Spalding who specializes in Islamic finance. "Now the Muslim investor can make money because he didn't give Loehmann's a loan."

Crescent, which paid about $650 million for Church's, Loehmann's, and Caribou, expects to buy two to four more companies in the U.S. this year. And based on Crescent's success, more Islamic banks are following suit: Unicorn Investment Bank of Bahrain just opened its U.S. private-equity arm in Chicago last summer. Qatar Islamic Bank has also announced it would open a U.S. subsidiary next fall under the name of American Financing House, with $100 million under management.

"There's lots of money in the Gulf, and there are lots of people who want to keep their faith," says Harvard Business School professor Samuel Hayes. "Crescent Capital just figured out how to do it well first." And, it seems, spawned some eager followers along the way. -- Barney Gimbel