July 22, 2017
By Dr Hanudin Amin
ISLAMIC gold investment accounts are recently emerged as an attractive investment options for investors to diversify their portfolios.
People are investing in such accounts as diversification to reduce risks and costs.
There are countless factors that can explain why one is investing 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 and owns for it.
In Labuan alone like many places, a gold ownership is synonym for women who are overtly the key consumers for ar-rahnu schemes are out of their direct ownership that is permitted by the religion of Islam.
Sheikh Dr Yusuf Al Qaradawi, the 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 femine 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, is out of a deliberation to combat luxuriousness in living in which such a luxurious 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 that 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 involve in gold trading for better planning of their asset portfolio for capital gains, 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 the banks to expand their market to include an investor who 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 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 but from a conventional mode of practice. The banks are Maybank, CIMB Bank, UOB and Public Bank, which have a limited consideration on the availability of gold.
Secondly, the accounts are of a great avenue that offer investors with a peace of mind when 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 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’s local people. This is done since respondents of the study are not easy to locate and can only be recognized 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 the penetration rate for the investment scheme in Labuan is still low.
My observations tell me about two grounds.
Firstly, there exists a poor literacy among local folks about the presence and advantages of the investment.
Secondly, there exists a fallacy in that the investment scheme has a low liquidity along with its poor accessibility in Labuan. Yet, further research is needed to confirm these hypotheses.
When asked about their willingness, 103 respondents were of the opinion to “strongly agree” to support to choose 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 were “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. 5-Likert scale is used.
Although these findings are explicitly is promising, two new issues are being raised that warrant a need of new empirical study in this area:
Issue #1 – What are 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 Muamaat Gold-i Account (MGi) on the 12nd July 2017 that 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.
First, MGi is enable investors to partake in it without the need to keep physical gold.
Second, 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 Kuwait Finance House on 29 April 2010.
Until recently, BMMB was the second Islamic bank to introduce an Islamic gold investment account.
The advent of the products has fortified muslim male investors’ participation to diversify their portfolios.
More efforts, however, are 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 of essential to tap 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 firstname.lastname@example.org.