Investment in gold accounts among Labuan folks still low

ISLAMIC gold investment accounts have recently emerged as attractive investment options for investors to diversify their portfolios. Typically, people invest in them for the sake of diversification where reduced risks and costs matter.

There are countless factors that can explain why one is invested in Islamic gold investment accounts. The factors are two-fold but not limited to: Firstly, gold has a stable value that defeats an inflation. Unlike gold, a paper currency is unable to rout an inflation that expounds a notion of time value of money, “Today MYR1 - cheap, Yesterday MYR1 - expensive”. Secondly, gold investment is universally accepted. Gold is a global “commodity” that makes everyone asks for and own it.

In Labuan alone, like many places, gold ownership is synonymous for women who are overtly the key consumers for arRahnu schemes out of their direct ownership that is permitted by the religion of Islam. Sheikh Dr Yusuf Al Qaradawi, well-known Shariah scholar, asserts that “love of jewellery and ornaments is quite natural for women and is allowed for them out of consideration for her feminine nature”.

Unlike women, men are forbidden to use jewellery, which may limit their involvement in ar-Rahnu transactions. Men are forbidden to own a gold ring, a gold pen, a gold watch and a gold teeth, out of a deliberation to combat luxuriousness in living in which such luxuries may lead them to an acute weakness of social injustice.

This week, I intend to draw your attention pertinent to Islamic gold investment accounts from the context of Muslim male local folks in Labuan. Two questions are in need of answers. Question #1 - Do Islamic gold investment accounts allow for men? Question #2 - To what extent do Labuan folks invest in Islamic gold investment accounts?

Today, however, there exists a development that allows men to engage in gold transactions via Islamic gold investment accounts that are currently available at branches of Al-Rajhi Bank and Kuwait Finance House. For instance, Kuwait Finance House offers two accounts namely KFH Gold Account-i and KFH Junior Gold Account-i.

These accounts allow investors to track and plan their investments wisely as trades are recorded in their account statements. They can get involved in gold trading for better planning of their asset portfolio for capital gains and in return, such a trend is allowed for men (halal). Of course, this new development enables Muslim male investors to diversify their portfolio of investments while increasing their participation in gold transactions effectively.

This innovation has moulded a leeway for banks to expand their market to include investors who are gold addicts, expanding the bank’s customer base. Other Islamic banks, however, are still in the pipeline.

There are at least two reasons why Islamic gold investment accounts are ideal for men. Firstly, Islamic gold investment accounts ensure gold bars or any other forms are available during the time when a customer of an Islamic bank opens an Islamic gold investment account. Indeed, Islamic gold investment accounts are transacted in line with maqasid al-Shariah. Thus, gharar is phased out.

Earlier banks offering these products, namely Maybank, CIMB Bank, UOB and Public Bank have a limited consideration on the availability of gold. Secondly, the accounts are of a great avenue that offerinvestorsapeaceofmindwhen investing in gold without having to keep the physical gold. Investors can also earn capital gain when gold price appreciates. Unlike unit trust investments, no charges are imposed on withdrawal for Islamic gold investment accounts.

Moreover, I would like to share empirical findings pertinent to actual behaviour and willingness of some local folks in Labuan on the investment of Islamic gold investment accounts. A judgmental sampling is used. A respondent is selected if he meets these criteria: (1) A respondent is an existing customer of an Islamic bank who owns Islamic banking experiences. (2) A respondent has a desire to invest in Islamic gold investment accounts. (3) A respondent is a Labuan local. This is done since respondents of the study are not easy to locate and can only be recognised based on the criteria mentioned.

Of the 162 respondents obtained, it was reported that only 41 respondents were invested in Islamic gold investment accounts, or 25.3 percent. The majority of the respondents, however, were not invested in the accounts. The reported percentage was 74.7 percent (121), implying that the penetration rate for the investment scheme in Labuan is still low.

My observations tell me two things. Firstly, there exists poor literacy among local folks about the presence and advantages of the investment. Secondly, there exists a fallacy in that the investment scheme has low liquidity along with poor accessibility in Labuan. Further research is needed to confirm these hypotheses.

When asked about their willingness, 103 respondents were of the opinion to “strongly agree” to support choosing Islamic gold investment accounts as their investment outlets, followed by 39 respondents who were of the opinion to “agree” to have a willingness to invest in the scheme and about 15 respondents who “moderately agree” to invest in the scheme in the near future. These findings imply a positive willingness by local folks to invest in the scheme. The 5-Likert scale is used.

Although these findings are explicitly promising, two new issues are being raised which warrant a need of new empirical study in this area. Issue #1 What are the actual factors for the receptivity of the accounts? Issue #2 - Do online transactions matter?

Hitherto, two foreign Islamic banks offering Islamic investment accounts are not found in Labuan, viz., Kuwait Finance House and Al-Rajhi Bank. Fortunately, Bank Muamalat Malaysia Berhad (BMMB) launched the Muamaat Gold-i Account (MGi) on the July 12, 2017 which provides flexibility for investors to purchase a minimum of 1g or MYR10 worth of gold, with free safe keeping by the bank.

MGi has two key features. Firstly, MGi enables investors to partake in it without the need to keep physical gold. Secondly, MGi contains 99.99 percent of highest purity minted gold bars and is backed by the Perth Mint Australia cast gold bars weighing 1kg each and accredited by the London Bullion Market Association.

All in all, Islamic gold investment accounts were firstly introduced by the Kuwait Finance House on April 20, 2010. Until recently, BMMB was the second Islamic bank to introduce an Islamic gold investment accounts. The advent of the product has fortified Muslim male investors’ participation to diversify their portfolios. More effort, however, is needed to market the products in Labuan where consumer action research comes into play. As such, a sort of collaboration between the banks and local institutions is essential to tap into the potential of the products for survival and loyalty in Labuan, at least.

*The author is an Associate Professor/Dean at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at hanudin@ums.edu.my