Opportunities for Gold in Islamic Finance Shaokai Fan World Gold Council 4-6 JUNE 2017 Grand Copthorne, Singapore
The Shari’ah Standard on Gold AAOIFI Standard No. 57 on Gold and its Trading Controls (the “Shari’ah Standard on Gold”) was published in November 2016 Why is a Shari’ah Standard on Gold necessary? “ Ribawi ” Gold is subject to more stringent religious rules Item Limited Existing Shar’iah guidance on modern gold products was Guidance limited and fragmented What does the Shari’ah Standard on Gold do? Removes An AAOIFI-issued standard carries widespread recognition Uncertainty throughout the Islamic community Definitive The Standard provides definitive guidance on all the modern Guidance financial uses of gold, enabling more Islamic gold products 4-6 JUNE 2017 2
The Potential for Gold in Islamic Finance Islamic finance suffers from a lack of diversity and liquidity in its investible universe. Adding gold greatly expands the possibilities within Islamic finance. Benefits of Gold for Islamic Investors Size of Gold Market vs. Islamic Assets (2015) Takaful USD23 Large, Liquid Asset Class billion Islamic Funds USD71 billion Fills Critical Gaps in Islamic Finance Gold Sukuk Ultimate Safe Haven USD7 trillion Outstanding USD291 billion Powerful Diversification Benefits Islamic Banking Assets Can Enhance Returns USD1.5 trillion Source: World Gold Council, IFSB 4-6 JUNE 2017 3
The Potential for Gold in Islamic Finance Gold shows almost no correlation to existing Islamic asset classes, and is not more volatile than existing assets. Islamic Asset Classes Correlation to Annualized Volatility of Islamic Assets Gold (8 Year) and Gold (8 Year) DJ Sukuk Index FTSE World Shariah Index 0.06 0.13 Axis REIT 0.15 DJ Islamic Index 0.12 DJ Islamic Index 0.16 Axis REIT 0.10 FTSE World Shariah Index 0.16 DJ Sukuk Index 0.02 Gold 0.17 FTSE NASDAQ Shariah Index -0.01 FTSE NASDAQ Shariah Index 0.21 Takaful Index 0.30 Takaful Index -0.06 0 0.1 0.2 0.3 -0.5 -0.3 -0.1 0.1 0.3 0.5 Source: World Gold Council, Bloomberg. 8-year returns and correlations used due to limitations on data availability for Islamic assets 4 4-6 JUNE 2017 4
Advancing Islamic Finance Through Gold With the Shari’ah Standard on Gold in place, we are engaging the broader Islamic finance community on gold’s potential. Outreach and Education New Product Development • • Working with Islamic financial Engaging Islamic institutional institutions on creating new investors and other buyside gold-based products institutions on the case for gold in Islamic finance • Developing solutions that fit the • needs of all Islamic investors – Outreach to policymakers and including retail, high net worth, industry groups on the potential institutional, and others for gold to advance Islamic finance 4-6 JUNE 2017 5
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