US-based Standard & Poor’s Rating Services (S&P) has estimated the assets of the global Islamic finance industry at $2 trillion, and expects them to reach $3 trillion sometime in the next decade.

However, S&P joins other analysts in predicting growth will slow to single figures from 2015.

The Islamic finance sector had been growing between 10 and 15 per cent a year over the last ten years.

The slowdown will be partly driven by lower oil prices, which are weakening economic growth in core Islamic finance markets such as the GCC.

However, with GCC governments protecting investment spending, they may issue more sovereign sukuk. S&P also sees Islamic finance as “a natural partner for infrastructure financing given the industry asset backing principle,” meaning that Islamic project finance could be a growth area, according to the report.

Iran, which makes up 40 per cent of the global Islamic finance industry, could also be an important opportunity for the sector. It may also find sukuk issuances “a viable financing route” to widen participation beyond its struggling banking sector.

Other major challenges include the geographical fragmentation of the industry, and fast changing conventional financial regulations.

Basel III liquidity requirements will also force the Islamic banking to find new short-term liquidity instruments. Governments, central banks and other institutions may have to step in to address the situation.

The International Islamic Liquidity Management Corporation (IILM) regularly issues 3-month sukuk between $400m and $1bn to manage banking liquidity, but does not have the capacity meet the industry’s requirements. The UAE Central  Bank is also issuing short-term liquidity management instruments.

This would also create a pricing curve for profits in Islamic finance, and decrease the sector’s reliance on conventional debt pricing.