Dec 20 New standards for the use of precious
metals in Islamic finance are encouraging the development of
financial products based on gold and silver, from futures
contracts to a mobile app.
The Bahrain-based Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI), which sets guidelines
followed in whole or in part by Islamic financial firms around
the world, approved new standards last month for precious
The standards will reduce uncertainty over what is
religiously permissible, which has hampered development of
products using precious metals. The greater clarity provided by
the standards could spur an increase in the use of gold and
silver in Islamic finance over the next few years.
It is too soon to gauge the extent of that increase, but
some companies have begun testing the Islamic market's
Toronto-based Bullion Management Group (BMG), which manages
$348 million in assets, launched a silver fund in October and
expects its bullion funds will adhere to the new AAOIFI
guidance, Nick Barisheff, BMG's founder and chief executive,
Take-up of the fund by wealthy individuals has been limited
so far, but demand for securitised products such as
exchange-traded funds could come from institutions that cannot
buy bullion directly because of their internal investment
policies, Barisheff said.
"Securitised versions could expand the market by allowing
investors such as corporates."
The new standards stipulate that transactions must be fully
backed by physical metal and settled on the same day.
On Monday, the Singapore Exchange (SGX) said it
had certified as sharia-compliant its gold futures contracts,
which were originally launched in 2014 and are aimed at the
The physically delivered contracts will provide a new risk
management tool in Islamic finance, SGX said in a statement. Its
thinly traded Singapore kilobar gold contract saw only two lots
traded in October, according to SGX data; targeting Islamic
investors could help to revive interest in the contract.
Meanwhile, Malaysia-based HelloGold has launched a
sharia-compliant online platform using a mobile app, targeting
customers through agreements with technology and financial
services firms, chief executive Robin Lee said.
The firm has partnered with Asian retailer Aeon Credit
Service to offer the product to Aeon's 20,000
employees in Malaysia, and plans to extend this to Aeon's 4.5
million customers in the country by February.
"We expect to sell about 10,000 ounces of sharia-compliant
gold by the end of next year," Lee said. He also said that the
firm planned to enter Indonesia, the Philippines and Thailand
next year and China by 2019.
At least one institution which originally tried
unsuccessfully to promote the use of gold in Islamic finance is
In 2009, the Dubai Multi Commodities Centre (DMCC) and the
World Gold Council launched an Islamic gold exchange-traded
product that was eventually delisted because of low trading
This month, the DMCC said it had partnered with Turkey's
Borsa Istanbul to develop a sharia-compliant precious metals
platform. It gave no time frame for the platform to be up and
(Editing by Andrew Torchia and Jane Merriman)