Gold standard in Islamic finance ‘almost there’ for submission

DUBAI: Gold products used in Islamic finance would need to be physically-backed and allocated to the underlying asset, according to a draft of a standard for Syariah gold being developed.

“We are almost there” with a final proposal, said Mohd Daud Bakar, a Syariah scholar who is writing the draft for the Accounting and Auditing Organisation for Islamic Financial Institutions, the Bahrain-based industry group that sets syariah standards in finance.

The committee formed to develop the gold standard will meet once more next Sunday and then submit the proposal to AAOIFI's syariah board, he said in an interview in Dubai yesterday.

A gold standard stands to boost demand for the metal as most Syariah buyers can only invest in real estate, Islamic bonds and some stocks.

Because of the physical backing requirement, Comex gold futures wouldn’t qualify to be syariah-compliant while the Singapore gold contract would, according to Matthew Keen.

Keen is the founder of Evidens Consultancy in Dubai.

“Hundreds of tons” of new demand could be created, said Natalie Dempster, a managing director of the World Gold Council.

“The standard would fill an important gap in the market.”

Syariah-compliant financing is governed by the Quran.

It includes sharing risk, prohibits any involvement in businesses deemed as unethical such as gambling and forbids interest payments.

The syariah standard for gold could be applied to products including exchange-traded funds to collateral and security deposits, according to the World Gold Council.

The gold standard is expected to be completed later this year.

Public hearings could be held in Morocco and Dubai and possibly Indonesia or Malaysia, Bakar said. — Bloomberg