Islamic Finance

Amanie Advisors: Genesis of the Shariah Standard on Gold

| 04 January, 2018 | General
 Amanie Advisors LLC
Amanie Advisors: Genesis of the Shariah Standard on Gold
Photo: Surface of cast gold bullion. Picture taken March 7, 2017. VladKK / Shutterstock.com

This article is paid for and produced by Amanie Advisors as part of the State of the Global Islamic Economy Report 2017. 

The report can be downloaded from HERE.

Just one year ago, the gold market for Muslims was a figurative Wild West, lacking a specific and dedicated reference on Shariah rulings and requirements for gold trading activity. The public had to rely on varying references in the form of Shariah opinions (Fatwa) from Shariah scholars around the world on highly specific issues related to gold.

For example, on the issue of delivery upon conclusion of sale, interpretations were usually strict and literal in manner, which greatly hampered gold trading activities in the market. If the interpretations weren’t strict, people were afraid of dealing in such transactions lest they be involved in usurious (ribawi) activity – classic rock and a hard place.

The project to remedy this situation actually began at the end of 2014, a collaboration with the World Gold Council (WGC) to identify gaps and obstacles in the usage of gold in Islamic finance. After conducting additional extensive research on the regulatory frameworks of various markets and Shariah rules applicable to gold-based transactions, we found a dire need for Shariah clarification, certainty and transparency on the utilization of gold in the industry.

The gold market in 2015 was an estimated $7 trillion, dwarfing many existing Islamic finance asset classes, e.g. Sukuk, 25 times over. With over $1.8 trillion worth of funds being held in Islamic financial institutions, it was expected that a standardized set of Shariah rules and regulations would be a boon to the gold market and vice versa. FinTech, too, was thought to be a prime benefactor especially with the rise of blockchain and the possibility of a gold-backed cryptocurrency.    

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Report: State of the Global Islamic Economy 2017/18

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The next step was to approach the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to propose the issuance and adoption of the Shariah Standard on Gold. The Standard was developed in direct collaboration with market players, regulators, and Shariah scholars from around the world to ensure that it would be applicable in all Islamic finance markets and by all industry practitioners.

The Standard aims to explain the types and forms of gold, the Shari’ah parameters for gold in its various functions, and the Shari’ah rulings for gold-based financial products. It also allows investors to assess and verify that any gold product offered in the market adheres to the relevant Shariah rules and principles. For regulators, it provides necessary guidance to evaluate regulated products and their compliance to Shariah requirements.

After months of discussion and refinement to achieve the aforementioned aims, the Standard was officially launched on 6 December 2016 and is now available for access at http://shariahgold.com/.

Based on ongoing engagement and interaction with market players, Amanie is optimistic that the best is yet to come and we have only seen the tip of the iceberg. We can safely conclude that gold is definitely a permissible asset class and that the Standard will allow for the development of more innovative and ground-breaking gold-related products. These will benefit not only the Muslim community, but also the international society at large. The potential is indeed limitless.

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