“Without change, there is no innovation, creativity or incentive for improvement.” — William Pollard

As the quote above says, growth can only be a direct result of change. Only when change is affected, will innovation and improvement be aplenty.

One of the more exciting changes that I hope to see in the shariah investment landscape is the evolution of the ruling on gold investment. Although there have been numerous shariah-compliant gold-based investment products over the years, there has not been a universally accepted shariah standard to govern such investments. 

This gap has given rise to the debate on shariah compliance for many of the gold products offered previously. In the past, these products were put under the microscope by shariah supervisory boards, which advise potential investors, to determine their compliance with the shariah. This was a laborious and time-consuming process for both product owners and potential investors. 

More often than not, it would result in investors declining the opportunity to invest as they were not willing to spend time poring over the terms of the products to determine their permissibility. The absence of a common yardstick has certainly made it tough for investors to assess whether these products are shariah-compliant.

Why are gold investments considered a complicated proposition for shariah-compliant investors? The main reason for this is because gold is one of the six Ribawi items mentioned by the Prophet Muhammad (peace be upon him) in the following hadith related by ‘Ubadah ibn al-Samit and narrated by Muslim:

“(The exchange of) gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt (shall be) in equal quantities and hand to hand (spot). If they differ in type, you may trade in them as you wish, provided it is hand to hand (without deferment on either side).”

To summarise, as a Ribawi item, gold can only be bought and sold at spot and deferred payment for the purchase of gold is not permissible under the shariah. These factors have discouraged the use of gold as an investment commodity for shariah-compliant products.

In a recent development, the World Gold Council (which is the Islamic standard-setting body based in London) and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), in consultation with Amanie Advisors, have teamed up to work on a draft of a new gold standard that could be a game-changer for the global Islamic finance industry. 

The proposed standard is aimed at providing more clarity on the potential use of gold and to serve as a set of basic parameters for all future shariah gold product offerings. Having a clear rule book will allow Islamic finance practitioners to continue innovating and offering more comprehensive gold-based shariah-compliant investments.

However, before this gold standard can be implemented, it will have to go through the process of getting feedback from industry players and the endorsement of the AAOIFI shariah board. It is the normal process to put in place a robust standard that will have maximum coverage of the subject and have useful features for industry use.

Personally, I am excited to see this positive development as it will help Islamic financial institutions expand their array of products. In the current tough market conditions, gold has slowly reestablished itself as a safer asset class, thus courting more demand from investors. 

I hope to see the day when gold is an integral part of a shariah-compliant investment portfolio and plays a multitude of roles as per the proposed standard. Kudos to everyone working hard to make this a reality. Your work will definitely change the Islamic finance landscape in years to come.

Baiza Bain has 16 years of experience in various sectors of the Islamic finance industry, particularly in research and development. He is currently with Maybank Asset Management Group. The views expressed here are his own.

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