It said sukuk worth $63.5 billion (59 billion euros) were issued in 2015 compared with $116.4 billion in the previous year, a 45.4 percent decline.
The drop was largely due to Malaysia's central bank, one of the largest global providers of the product, which stopped issuing sukuk.
It issued $50 billion of sukuk alone in 2014. Were Malaysia removed from calculations, sukuk would have dropped just 5 percent in 2015, S&P said.
The rating agency forecasts that sukuk issuance will drop to between $50 billion and $55 billion this year, a decline of 13-21 percent.