The 96th Discourse of the Fatwa Committee of the National Fatwa Council for Islamic Religious Affairs Malaysia convened on 13th-15th October 2011 had discussed the Parameters of Gold Investment and made the following decision:
After hearing the briefing and explanation given by Y. Bhg. Dr. Ashraf Md. Hashim and Y. Bhg. Ustaz Lokmanulhakim bin Hussain from the International Shari`ah Research Academy for Islamic Finance (ISRA), the Discourse has agreed to accept and approve the following Gold Investment Parameters:
General Conditions of Sale and Purchase
1. Sale and purchase transactions of gold must comply with all the conditions of sale and purchase as prescribed by Shari`ah, namely the contracting parties, items of exchange and pronouncement according to the customary practice. If a particular transaction fails to fulfil one of the sale and purchase conditions, the said transaction shall be considered void.
2. The Contracting Parties must be those having the capacity to execute a contract (Ahliyyah al-Ta’aqud), that is, by fulfilling the following criteria:
i. Age of majority, sound mind and discerning (rasyid)
A sale and purchase transaction by a contracting party who is insane or a child, whether prudent (mumayyiz) or imprudent (not mumayyiz), is void. An offer and acceptance made by a prudent child is invalid on the ground that the sale and purchase involves highly valuable goods.
The contract of sale and purchase must be concluded by two consenting parties, without elements of coercion, pressure and exploitation.
Purchase Price (al-Thaman)
3. The purchase price (al-Thaman) must be clearly known to the contracting parties during the sale and purchase transaction.
The Purchased Goods (al-Muthman)
4. The purchased goods (al-Muthman) shall be something that is in existence, and entirely owned by the seller during the occurrence of the sale and purchase contract. Therefore, the sale and purchase of something that does not physically exist and is not owned by the seller is void.
5. The purchased goods (al-Muthman) must be something that is transferrable to the buyer or his representative. In the event that the purchased goods are not capable of being transferred to the buyer, or the seller makes it a condition not to transfer the goods to the buyer, then the contract is void.
6. The purchased goods (al-Muthman) shall be known to both contracting parties during the sale and purchase transaction. This is possible through the following mechanisms:
- Personally viewing the goods to be purchased during the sale and purchase transaction, or if viewed prior to the contract it must be within a timeframe that will not affect the characteristics of the goods.
- Viewing the sample of the goods to be purchased. This usually takes place during the ordering process and prior to execution of the contract.
- Identifying features and rate of the purchased goods in detail, which customarily will not give rise to a dispute. In the context of gold, its identification is performed by defining the level of authenticity of the gold, using the old standard based on carat (such as the 24 carat gold), or the new standard based on percentage (such as the 999 gold). This feature identification must also cover the gold forms, either in the shapes of coins, wafers, blocks, etc). Accuracy in the weighing of gold is also a condition in the identification of the gold features.
7. In a sale and purchase transaction, pronouncement indicates consent of both parties to conclude a sale and purchase contract. It can be materialized either verbally, or through a method that can possibly bear the values of an oral speech such as writing, and the equivalents. Meanwhile, sale and purchase through Mu’ataah is regarded as a credible pronouncement by some jurists.
8. The element of time contigency must not be included as part of the pronouncement in a sale and purchase transaction. For instance, a person says,
“I am selling these goods to you at the price of RM100 for the period of one year”.
9. Offer and acceptance must match and be identical with one another in terms of attribute and rate.
Specific Conditions for Sale and Purchase of Gold with Usury Attribute
10. Due to the reason that gold and money are two items containing the element of usury and sharing the same effective cause, therefore the following additional conditions must be fulfilled:
- Taqabudh (transfer) of the two items involved in the transaction must take place before the contracting parties depart from the contract session.
- The sale and purchase of gold must be executed on the spot without any delay. The said conditions only applicable to the types of gold having an usury attribute, such as gold blocks and gold coins. These conditions will not apply to gold jewellery as it falls outside the scope of the effective cause of usury (riba).
The particulars of taqabudh and other on-the-spot transactions are as follows:
The first condition: Taqabudh
11. Taqabudh (transfer) must apply to both sale and purchase items namely the price and purchased goods (gold), and it must be executed prior to the departure of both parties from the contract session.
12. The consideration may be executed through the following methods:
- Cash payment
- Payment by certified cheques (e.g. banker’s cheque)
- Payment by personal cheques
- Payment by debit card
- Payment by credit card
- Cash transfer from a savings or current account
Traditionally (by ‘urf) all of the above modes of payment, except for (c) are regarded as cash payment by the seller. Payment through the credit card is still considered as cash due to the seller being able to claim the selling price in full from the credit card issuer. Any debt, if it does exist, is a matter between the credit card holder and the card issuer, not the seller.
This cash term is still customarily acceptable to the seller notwithstanding that in actual fact, the payment is physically obtained or gets transferred to his account several days after the transaction takes place.
13. The actual transfer of the purchased goods (the gold) must take place or done through an acceptable method that can replace the actual transfer. The latter will have the same effects as the actual transfer, namely:
- Transfer of dhaman (pledge) from the seller to the buyer
- The buyer’s capacity to obtain his purchased goods at anytime without any deterrence.
14. The contract session in a sale and purchase transaction may take place by way of physical meetings, or through constructive means (maknawi). An example of the latter is an offer and acceptance via telephone, short message service (sms), email, facsimile, etc. For this category of contract session, it is a condition that taqabudh shall take place, for instance through a wakalah transfer (transfer by one’s representative).
It must be noted that a contract session in the form of writing shall only begin when (the written document) is received by the contracting party. For example, the buyer signs a sale and purchase agreement and subsequently mails it to the seller. After three days, the agreement reaches the seller. In this situation, the contract session begins at that point of time and if the seller agrees, he shall complete the contract session by affixing his signature to the agreement. The purchased goods shall be transferred to the buyer through actual or constructive means.
The second condition: On the spot
15. The sale and purchase transaction shall take place on the spot and there must not be any element of delay, either in the transfer of consideration or gold.
16. The prohibited delay in the transfer of consideration shall cover purchase by full credit or purchase by instalments.
17. Any delay in the transfer of gold that exceeds three days after the conclusion of the sale and purchase transaction is totally prohibited.
As for the delay in the transfer of gold that is less than three days, the Discourse is aware that there exist different views by scholars on this matter. Despite that, the Discourse is in favour of adopting the opinion that forbids any delay even if the period is less than three days. In other words, the transfer of gold shall take place in a contract session without any postponement. This is because in gold trading, the delay of three days is not an urf, unlike in the case of a foreign currency exchange.
In a foreign currency exchange, the period of T+2 is necessary as it goes through a certain process that involves the different working hours between countries, electronic money transfer, clearing house, etc. The processes mentioned here do not exist in the sale and purchase of physical gold. Therefore it is inaccurate to apply qiyas (analogical reasoning) to the foreign currency exchange process.
However, practically, the seller will transfer the gold after the amount of payment, made by cheque, etc is credited to his account. This process usually takes three working days. In dealing with the period between the cheque transfer and the receipt of gold, the seller and the buyer may adopt the following rules:
The buyer shall only make an order to the seller by mentioning the type and weight of gold that he wishes to buy. This order shall be accompanied by his remittance of money to the seller’s account. At this stage, the following must be given due attention:
- At this stage, the contract of sale and purchase of gold has not taken place.
- The money that has been deposited to the seller’s account is not yet his. It still belongs to the purchaser and is kept on trust by the seller. In this case, it is better for the seller to open a special trust account.
- The gold is still owned by the seller and he is fully responsible for it.
- At this stage, the purchaser may still be able to cancel his order and but in such case the seller shall return the money to the purchaser. However, if there is any actual loss due to the cancellation, a condition may be imposed to the effect that it shall be borne by the buyer.
For instance, the buyer made an order of 100gm of 999 gold at the price of RM 20,000. At this point, the seller will have reserved the said gold and not sell it to any other party prepared to purchase it. After three days, when the seller is ready to execute the sale and purchase contract and thereafter transfer the said gold to the buyer, the buyer decides to cancel his order. On the very same day, the gold price has dropped to RM 19,000. In other words, the seller would suffer a loss of RM 1,000 if he sold it to another party. In this case, the actual loss is RM 1,000.
Once the bank has cleared the money order, then the sale and purchase contract must be executed. The money in the trust account (if any) can be transferred to the seller’s account and the gold shall be handed over to the buyer.
Contract and Additional Elements
18. The involvement of hibah (gift) in a sale and purchase transaction whether in kind or cash is permitted if it fulfils the conditions of hibah, and does not involve elements that are contrary to shari`ah. It must be pointed out that hibah is in fact a voluntary contract and is not in the typical form (of transaction). In other words, if an undertaking (to grant) hibah is not fulfilled by the seller, the purchaser cannot compel him to grant the said hibah.
19. The involvement of wadiah (safekeeping) in the gold investment plan shall comply with the rules and regulations of wadiah, which include among others that the holding of wadiah must be based on Yad Amanah (savings with guarantee).
20. A person who buys gold is free to deal with his gold (tasarruf), including granting loans (qardh) to others. However it must satisfy the criteria of qardh allowed by the shar’iah, which inter alia include, being free from the elements of interest and “salaf wa bay”, namely a debt that is tied to the sale and purchase.
21. A person who buys gold is free to deal with his gold (tasarruf) including using it as a security against a cash loan, as long as the concept of al-Rahn (pledge) that is applied is in line with shari`ah. However in theory, this is not encouraged as it leads to unnecessary debt-contracting activities.
22. Wa’d (promise) can be included in a gold investment, so long as it is a wa’d on one side and not muwa’adah (promises) on both sides. An example of application of wa’d in this context is making a purchase order i.e. when a customer makes an undertaking to buy gold at a certain price. This purchase agreement is known as ‘price-locking’. If the process of price-locking is similar to a contract of sale and purchase, then it is prohibited as it would lead to delay.
23. Sale and purchase transactions must be free from elements of usury, gambling, excessive uncertainty and oppression. If any of such elements exists, it is presumed that the sale and purchase transaction does not fulfil the shari`ah criteria.