Jan 20 A top guideline-setting body for Islamic
finance is developing a standard for gold-based products in the
industry, a move that could allow the use of bullion in a wide
range of sharia-compliant applications.
Until now gold has been treated mostly as a currency in
Islamic finance, limiting its use to spot transactions. There
has been little guidance from standard-setters on products which
classify gold as a commodity underlying more complex contracts.
The Bahrain-based Accounting and Auditing Organisation for
Islamic Financial Institutions (AAOIFI) said last week that it
had taken up the development of a standard for gold, a project
which was launched last year by the World Gold Council (WGC), a
London-based market development body.
"This standard is expected to have a substantial, positive
impact ... and will cover a wide spectrum of contemporary
applications," AAOIFI secretary-general Hamed Hassan Merah said.
AAOIFI issues guidelines that are followed wholly or in part
by Islamic financial institutions around the world, which hold
around $2 trillion in assets.
The WGC published an exposure draft in November which
analysts believe could accelerate the timetable for the creation
of a final standard. Such drafts have traditionally taken AAOIFI
scholars two years to develop internally.
The WGC's draft outlines several uses for gold such as
investment accounts, derivative contracts, security collateral,
exchange-traded funds and Islamic bonds, said Natalie Dempster,
WGC managing director of central banks and public policy.
Potential issuers of Islamic instruments have expressed
interest in products such as gold accumulation accounts and its
applications could extend to liquidity management tools for
Islamic banks, she said.
Islamic banks are expected to increase the amount of
high-quality liquid assets (HQLAs) which they hold to meet
stricter Basel III banking standards being phased in
"Gold for its nature could fit into HQLA buffers that
Islamic banks could hold," Dempster said.
The exchange of gold must be on a spot basis if treated as a
currency, but gold as a commodity could be the subject of a
future sale under the principle of salam, or deferred delivery
sale, the WGC's draft says.
This would require a unilateral undertaking from the buyer
of gold to execute a spot purchase at a later date, while the
seller would have full discretion to opt out of that
The WGC has held seminars in Dubai and Kuala Lumpur to
discuss its draft and plans to stage additional technical
workshops in the second quarter, Dempster said.
(Editing by Andrew Torchia and Alison Williams)