Gold in Islam and Islamic Finance
Amid the past Islamic period, there were neither banks nor any part of enthusiasm for financial movement. The allotment of funds/venture and transformation of speculation into creation and conveyance occurred without the organization of interest. A wide range of genuine and money related administrations like the deal/buy of merchandise and benefits and the arrangement of assets for beginning a financial action used to come altogether from the business division. It may help understand what is Gold in Islam, as it is said to be derived from that perioud.
Without any money related delegates like banks, there was immediate contact between savers (surplus units) and speculators (shortfall units), for the most part known as P2P (individual to individual) account in todays’ phrasing. Gold in Islam for Islamic financial transactions may be considered for the deal/buy of various products in the business sector, two of the Islamic banking products are:
Islamic Gold Standards for Financial Transactions
Gold could be an impetus for the development of gold standards in Islamic finance, with new controls that will permit Islamic speculators for access to gold-based items. The business sector advancement body in London and the Islamic standard setting body, AAOIFI, are dealing with a draft of the standard that would arouse the $4.8bn Islamic money industry.
Customers pretty much have been restricted to putting resources into bars and coins since that is the main zone where the standards are clear. It could change the path in which Islamic nations access gold. A last draft is required to be distributed in the following couple of months, to be trailed by a time of open interview. Regarding the gold standards in Islamic banking and finance, it is assumed that the standards could be issued in the final quarter, inciting its appropriation and unleashing many huge amounts of additional interest for gold.
Historical Utilization of Silver and Gold in Islam
Gold and silver have been utilized as cash all through history. Every progress needed to sort out its money related framework, the establishment of gold standard, its inner and outer exchange and in addition the wellbeing of its riches. Financial association was comparable crosswise over countries: it comprised of embracing a money related law characterizing the unit of record, the standard of significant worth, and sorts of coins as far as weights and shapes to be permitted to flow.
- It is challenging to implement gold standard in Islamic banking, however, it will be beneficial as we know that there are many advantages of Islamic banking and finance.
- The law composed the mints—organization, workplaces, and hardware—to issue the coins.
- Mints were to issue coins in consistence with laws for metal substance, weight, size, and insignia.
As such , we cannot find what is gold standard from the history, as no gold standard was written in the past.
Islam and Gold: Role of Mints in Bullion to Coin Conversion
The mints issued coins for bullion conveyed to them with no constraint. Their part was an immaculate transformation of metal into coins with no impact on the amount of cash available for use. The amount of metal to be authored was simply chosen by individuals who possessed bullion and expected to change it into coins. Coins were institutionalized and stamped so they turned out to be immediately identifiable and flowed with impeccable trust in exchange. Readers who wish to study diploma Islamic banking / masters in Islamic banking and finance and seeking professional career in Islamic finance, are recommend to find a suitable program offered by AIMS’ international centre for education in Islamic finance.
The Significance of Gold in Islam:
Gold holds great significance in Islam, both religiously and culturally. Its use as a currency dates back to the time of Prophet Muhammad (PBUH), who himself used gold as a medium of exchange. The Quran also mentions gold as a form of currency in various verses, further solidifying its importance in Islamic finance. In Islamic tradition, gold is considered a symbol of wealth and prosperity, and its acquisition is encouraged for both practical and spiritual reasons. It is seen as a tangible asset that can protect against inflation and market volatility, making it an attractive investment option for followers of Islam.
2. Shariah Standards on Gold in Islamic Finance
- Islamic finance practitioners follow Shariah standards to ensure financial transactions align with Shariah law principles. These extend to the use of gold in Islamic finance.
- As per the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), gold is viewed as a “currency with intrinsic value” and can be a transaction medium.
- For the use of gold to be permissible by Shariah, certain conditions must be met:
- Absence of riba (interest)
- Absence of gharar (uncertainty)
- Absence of maysir (gambling)
- Gold must be physically exchanged at the transaction time
- Gold’s value should be determined by weight and purity.
- Gold could drive the development of gold standards in Islamic finance, with new controls enabling Islamic investors to access gold-based products.
- The London-based market development body and the AAOIFI are creating a draft standard that could stimulate the $2bn Islamic finance industry.
- Previously, customers were mostly limited to investing in bars and coins as the standards in this area were clear.
- New standards could change how Islamic countries access gold. A final draft is expected to be published in the coming months, followed by a public consultation period.
- It is predicted that the gold standards in Islamic banking and finance could be issued in the final quarter, encouraging adoption and potentially unlocking massive additional demand for gold.
Gold a Viable Means of Providing Financial Support
1. Is Gold Loan Allowed in Islam?
The concept of gold loan in Islam has been gaining traction as a viable means of providing financial support to individuals and businesses. As an asset with intrinsic value, gold can be used as collateral for loans, or it can be leased out to generate income. The prohibition of interest is a fundamental tenet in Islamic finance, and this principle is particularly critical when examining the role of gold financing. The operations of Islamic finance revolve around the Profit and Loss Sharing (PLS) system. As per this system, profits earned from gold financing are apportioned between the lender and the borrower according to a previously agreed-upon proportion. Conversely, in the event of a loss, it is the lender who shoulders the burden.
2. Monetary Organization: A Cross-Cultural Comparison
Historically, gold and silver have served as cash across civilizations. Every society needed to establish its financial system, including the foundation of a gold standard, its internal and external trade, and its wealth protection. The monetary organization was similar across nations. It involved:
- Adopting a financial law defining the unit of account.
- The standard of value.
- The types of coins in terms of weight and shapes permitted in circulation.
It also entailed organizing mints — their functions, offices, and equipment — to issue the coins.
Gold in Islam: An Asset, Not a Currency
The role of gold in Islamic finance is complex and multifaceted, reflecting numerous Shariah standards and principles. Paramount to approach gold in Islamic finance not as a currency, but as an asset and a basis for mutually beneficial financial transactions. As the landscape of Islamic finance continues to evolve, it will be intriguing to see how the role of gold adapts and potentially transforms. The nuances of gold in Islamic finance are often best understood through advanced educational pursuits specifically designed around Islamic economics and finance. For instance, an Islamic Banking and Finance MBA Master’s degree provides a comprehensive understanding of the complexities of gold financing within the Shariah context. Alternatively, a research-based PhD in Islamic Economics and Finance offers a deep dive into the role that gold historically plays and its potential future in the evolving landscape of Islamic finance.