Global sukuk issuance volumes are expected to drop by 40%-50% to range from $50 to $60 billion in 2015, according to Standard & Poor’s Ratings Services (S&P).

During a conference in the Dubai Islamic Economy Development Center, the agency expected 2015 – 2016 to be a crossroads for Islamic finance.

There are challenges facing Islamic finance, including the possible negative impact of much lower oil prices and the prevailing low interest rates in most major developed countries, according to S&P.

There are some factors that will offset these negatives, such as advancements in standardization for Islamic finance products that could attract new investors, the potential lessons for the industry from bank resolution regimes in conventional finance, and the benefits from implementation of Solvency II for many insurance firms in 2016.

The industry has achieved a critical mass after 20 years of strong growth, enabling it to face increasing challenges, according to Stuart Anderson, S&P managing director & regional head, Middle East.

The reality of declining oil revenues could start to negative impacts on governments’ budgets and economic growth in core markets for Islamic finance.

Global sukuk issuance volumes have dropped by about 40% since the beginning of 2015 to reach $48.8 billion, said Mohamed Damak, S&P’s Global Head of Islamic Finance.

The fall is mainly attributed to the Central Bank of Malaysia’s decision to switch out of Sukuk to other liquidity management instruments for Malaysian Islamic banks.

Assets held by Islamic financial institutions worldwide will expand to approximately $3 trillion.

Islamic finance growth will moderate in 2016 on the now less supportive economic environment in the industry's two major growth engines, Malaysia and the GCC.