Growth in Islamic finance will likely slacken in 2016, dropping to single digits from between 10 per cent and 15 per cent over the past decade, according to a Standard & Poor's Ratings Services report.

Governments in core markets see in Islamic finance a tool to maintain their investment spending, somewhat countering the negative impact of oil prices on their budgets, said the report entitled "Islamic Finance To Still Grow In 2016 But With A Sag."

The regulatory changes could help the industry in resolving issues related to the lack of liquidity management instruments and applying more stringently its principle of profit and loss sharing. Standardization of documents and Sharia ruling could enhance industry integration and free stakeholders' capacity to focus on innovation.

"The industry has achieved critical mass--Islamic finance assets worldwide exceed $2 trillion by our estimate. But we now think the industry faces challenges from the decline in oil prices, changes in the global regulatory framework for banks and insurance companies, and its own fragmented nature," said Standard & Poor's global head of Islamic Finance Mohamed Damak.

“We expect the industry will be worth $3 trillion sometime in the next decade. Islamic finance stakeholders' efforts and the industry's contribution to development of the real economy will likely fuel growth," added Damak.

This development is capturing the interest of major financial institutions, such as the International Monetary Fund and the World Bank, and some advanced countries, he noted. – TradeArabia News Service