New Islamic banking rules make gold an accepted investment

Observer Report

Islamabad

Gold has become an accepted investment in the Islamic world for the first time as it can now be used as a commodity to back Sharia-based financial products, thanks to new standards announced recently. The fresh rules, said the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council (WGC), pave the way for Islamic institutions to trade not just gold but also silver in a much more actively fashion.
Transactions must be fully backed by physical metal and settled on the same day to observe Islam’s distinction between real economic activity and specu-lation. Until now, there were no specific rules for the use of gold as an investment in the Islamic finance industry, they noted. AAOIFI spent about a year working out the new guidelines on gold trading with the WGC, and agreed them last month.
“The complexity of Islamic attitudes toward gold products has led to a scat-tered and fragmented set of rulings,” the council said in a statement. “This lack of uniformity is a major impediment to the development of gold financial products in Islamic finance. Creating harmonized and authoritative Sharia guidance for gold is imperative therefore, if the asset class is to be-come more widely accepted by Islamic investors.”
Gold transactions must be fully backed by physical metal and settled on the same day, the developers of the new guidance said, to observe Islam’s dis-tinction between real economic activity and speculation.
Gold joins equities, real estate, Islamic bonds (sukuk) and takaful (insur-ance) as vehicles approved for Islamic finance, said AAOIFI. Sukuk volume slipped 1.4 percent in 2015 after the Malaysian central bank terminated its short-term sukuk issuance program, it noted. The standards authorize acquiring gold through agents.

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