Is­lamic fi­nance stan­dards spur de­vel­op­ment of gold, sil­ver prod­ucts

Kuwait Times - - BUSINESS -

LON­DON: 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 met­als.

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 po­ten­tial. Toron­to­based 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, said.

Take-up of the fund by wealthy in­di­vid­u­als has been lim­ited so far, but de­mand for se­cu­ri­tized 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 whole­sale mar­ket.

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.

Plat­forms

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 try­ing again.

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 vol­umes. 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 run­ning. — Reuters

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