The AAOIFI Shari’ah Standard on Gold developed in collaboration with the World Gold Council offers definitive guidance on the use of gold in Islamic finance.
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is recognised as the world leader in Islamic finance standards, and its rulings are widely accepted across most Islamic markets.
AAOIFI’s Shari’ah Standard on Gold, launched in 2016, has acted as a catalyst for the development of new Shari’ah compliant gold products including physical gold ETFs, spot contracts and gold savings plans.
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“AAOIFI’s Shari’ah expertise and the World Gold Council’s industry know-how have ensured that the Standard becomes the basis not only for the inclusion of a historically and economically important asset class, but for the stability of Islamic Financial Institutions around the world.”
Sheikh Yusuf DeLorenzo, International Shari’ah Scholar
What does the Standard cover?
The Standard is comprehensive and provides a framework for the development of gold-based products including ETFs, exchange traded contracts, Sukuk, gold investment accounts and gold savings plans. It covers the trading and exchange of gold, rules of ownership, and gold’s specific use in Islamic contracts, including:
- Gold as capital in Musharakah, Mudharabah, investment Wakalah
- Gold in commutative contracts (Mu’awadhat)
- Gold in the contracts of Salam and Istisna’a
- Gold leasing / gold in Ijarah contracts
- Gold in deposit contracts (Wadi’ah)
- Gold lending and endowment
- Gold in security contracts (Rahn, Hamish Jiddiyyah, ‘Arboun, Hawalat al-Dayn)
- Unilateral and bilateral promises in gold (Wa’d, Muwa’adah)
The Standard was developed after a comprehensive consultation process including industry hearings in Dubai, Kuala Lumpur and Istanbul, and consultation workshops hosted by the Central Bank of Turkey, Bank Negara Malaysia, ISRA, Central Bank of Oman and the Central Bank of Sudan.
Why was a standard needed?
Gold has a deep and historical connection with Islamic civilisations. However, the complex treatment of gold in Islamic tradition has limited its development as an investable asset class. As a ribawi item, stringent transactions rules apply to the trading of gold. There was also a 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 toward gold products limited the use of gold in Islamic finance. Harmonised and authoritative Shari’ah guidance for gold is therefore imperative for the Islamic finance industry to fully benefit from gold as an asset class.
It has opened up a new investment asset class, enabling Islamic banks and other financial institutions to grow their customer bases and facilitating the creation of a broader range of saving, hedging, and diversification products.