If you have any questions in relation to the Shari’ah Standard on Gold that you feel have not been addressed below, please contact us.
What is an AAOIFI Shari’ah Standard?
A set of Shari’ah rulings on a specific Islamic finance product, instrument, contractual element, transaction, or operation. It gives guidance on the Shari’ah rules and the Shari’ah basis for the permissibility or impermissibility of the Standard’s subject matter. Examples include Shari’ah standards on instruments (financial papers, commercial papers, sukuk), Shari’ah standards on Islamic finance contracts (Murabahah, Mudharabah, Ijarah), Shari’ah standards on operations (Takaful), Shari’ah standards on contractual elements (options to revoke contracts due to incomplete performance).
What does the Standard hope to achieve?
The AAOIFI Shari’ah Standard on Gold was developed to enable more Shari’ah compliant investments and to govern a very important asset class which by its nature is highly liquid and constitutes an alternative investment vehicle within the Islamic finance industry. This Standard will allow Islamic finance institutions to satisfy consumer and investor demand through the development of new Shari’ah-compliant gold products. It will also enable IFIs to develop alternative Shari’ah-compliant liquidity management tools.
Gold has historically played an important role in Islamic finance and the new guidance issued by AAOIFI clarifies the ways in which gold can be used and transacted in a Shari’ah-compliant way.
Which Shari’ah-compliant gold products does the Standard cover?
The Standard covers the use of gold in various contractual settings including partnerships, sales, noncommutative contracts (donations), and contracts of security (surety). These applications of the Standard can be used to develop Shari’ah-compliant products such as vaulted gold, regular gold savings plans, gold certificates and physical gold ETFs, amongst others.
What are the main Shari’ah considerations that apply to gold?
According to Shari’ah rules, gold is a fungible item which belongs to the broader category of Ribawi items, and the subcategory of monetary items (the two media of exchange, the other being silver). Gold is subject to the rulings on currency exchange (Sarf), where Shari’ah rules consider the exchange of gold for gold permissible provided that the two legs of the transactions are equal in weight and that the exchange is concluded on the same day or session. However, if gold is exchanged for silver or any other form of money, the transaction is considered permissible provided that handing over and taking possession are carried out based on Shari’ah rulings with respect to Taqabudh (i.e. in the session of the contract “trade date or T+0”). The condition of Taqabudh (immediate payment and receipt by the two parties to an exchange) does not apply to the exchange of gold for other commodities or services or other Ribawi items that belong to the subcategory of foodstuffs (e.g., wheat, dates, etc.)
Was it not permissible to invest in gold before?
Prior to the Standard there was a lack of clarity. All forms of investments are permissible by Shari’ah (Islamic law), unless such investments give rise to one or more of Shari’ah prohibitions. Investment in gold is permissible provided that relevant Shari’ah rulings are satisfied including those relating to taking possession and proper calculation of Zakah, among others.
What are the main benefits of investing in Shari’ah-compliant gold?
The Standard means that savers and investors can benefit from gold in a Shari’ah-compliant way. The main benefits of saving or investing in gold are that gold is a physical, tangible asset with no credit risk, it acts as a unique portfolio diversifier, it outperforms in times of crisis, it out performs major currencies, and it protects against inflation / preserves capital in the long run. World Gold Council research shows that modest allocations to gold of between 2% to 10% can protect and enhance the performance of a typical Shari’ah-compliant investment portfolio.
Is gold a currency or a commodity?
According to Shari’ah rules, gold can be both a currency and a commodity. It is a Ribawi item, and, along with silver, belongs to the subcategory known as “the two precious metals”. In both cases, the Shari’ah rulings on currency exchange (Sarf) must be adhered to when trading in gold.
Is it permissible to invest in gold mining companies?
Yes. It is permissible to buy the shares of a company that operates in the extraction of gold so long as the Shari’ah parameters are in place. AAOIFI Shari’ah Standard No 21 covers financial papers.
What indication do you have that this Standard will be adopted internationally?
Existing Islamic standards for gold are fragmented, hampering product development and market demand. While there is some guidance for gold coins and bars there is virtually no guidance on gold elsewhere in the financial sector. We believe the Standard addresses these issues and hence creates opportunities in the market for all participants.
As the premier Shari’ah-Standard setting body, AAOIFI Standards are adopted internationally – they are automatically in some jurisdictions, voluntarily adopted in others, and are adopted directly by AAOIFI’s institutional members.