The new Shari’ah Standard on Gold opens up an entire asset class to Islamic finance and is set to revitalise Islamic investment markets all over the world.
AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and the World Gold Council collaborated on the development of AAOIFI Shari’ah Standard No 57 on Gold and its Trading Conditions. The Standard adds an entire asset class to the Islamic finance investment landscape and gives confidence to savers, investors and industry practitioners that investing in gold and gold-backed products can be structured in a Shari’ah-compliant way.
We are proud to announce that following our recent Fatwa, The Royal Mint is now the first mint internationally to be recognised as being compliant with the AAOIFI Shari’ah Standard on Gold. This means that our full offering of gold and silver investment products are now certified as being compliant to the new Standard.
What is the AAOIFI Shari’ah Standard on Gold?
The Standard clarifies the Shari’ah treatment of gold, and sets out the rules for investing and transacting in gold. It can be used by financial institutions to structure gold-backed products in a Shari’ah compliant way. The Standard was developed and endorsed by the world’s leading Islamic finance scholars and as such is the highest authority on the Islamic rules for dealing in gold. The Standard was endorsed in November 2016 and was subsequently launched at the World Islamic Banking Conference in Bahrain in December 2016.
The Standard makes it possible to structure physical gold products in a Shari’ah-compliant way. These products include, but are not limited to:
- Vaulted Gold
- Gold Savings Plans
- Gold Certificates
- Physical Gold
- Physical Gold ETFs and exchange traded products
- Gold mining equities, subject to AAOIFI’s rules on the trading of company shares
What was the previous Shari’ah guidance on investing in Gold?
As a Ribawi item, gold is subject to specific Islamic rules. Ribawi items are defined as staple, everyday commodities that are frequently transacted. Stringent rules are applied to prevent injustice or inequality between transacting parties. Such items could permissibly be bought and sold, but only in terms of their current value, not in any speculative fashion. There was, historically, uncertainty about how these rules apply to contemporary gold investment vehicles.
There is also a longstanding debate about whether gold is a currency or a commodity, making the design of consistent Shari’ah rules for modern gold products more difficult. The complexity of Islamic attitudes towards gold has previously led to a scattered and fragmented set of rules. Due to a lack of harmonised guidance, some Islamic finance institutions were comfortable with offering gold products, others were not. The AAOIFI Standard changes this by removing any Shari’ah uncertainty about investing in gold.
“The new Standard offers definitive guidance on the use of modern gold financial products in a Shari’ah-compliant manner, opening up a new investment asset class in Islamic finance.”
The new Standard is important as it permits investment in gold at a time when the gold market is increasingly desirable to investors globally. This new Standard provides certainty as to whether gold-based investments are permissible at all, as well as precisely which investment options are Shari’ah-compliant, and under which circumstances. An additional asset class will support the growth of the Islamic finance industry. Islamic finance is projected to grow from USD 2trn to USD 4trn over the next few years.
One of the reasons that gold-based, non-speculative investment products are of so much interest within the Islamic world is that many such investors denominate their wealth positions in Indonesian rupiah or Malaysian ringgit. These currencies tend to be much more volatile than many G10 currencies, so if such investors can invest a portion of their portfolio in stable gold-backed instruments or actual vaulted gold, their own wealth can be better protected against market fluctuations.