In a landmark development for Islamic finance, diamonds have been officially recognized as a Shariah-compliant asset class. This recognition follows a fatwa issued by esteemed Islamic finance scholar Sheikh Dr. Mohamed Ali Elgari, enabling the use of diamonds in Islamic financial transactions across the Gulf Cooperation Council (GCC) and beyond.
For asset-backed transactions, Islamic finance has historically depended on commodities such as gold, silver, and specific foods. These assets do, however, frequently come with drawbacks, like expensive storage fees and particular Shariah regulations. In contrast, diamonds provide a reliable, material, and currently Shariah-acceptable substitute. The novel strategy used by Diamond Standard entails producing fungible diamond commodities that are completely deliverable and tradeable on spot exchanges, such as standardised coins and bars with wireless chips embedded in them. These commodities also feature electronic titles recorded on a public blockchain, ensuring transparency and ease of transfer.
The approval of diamonds as a Shariah-compliant asset is particularly timely, given the ongoing discussions around the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)’s proposed changes to Shariah Standard 62. These changes aim to make sukuk (Islamic bonds) more asset-backed, requiring actual legal asset transfers to investors. Diamonds, with their portability and standardized value, could play a crucial role in facilitating these asset-backed transactions, offering a practical solution to the challenges posed by the new standards.
The incorporation of diamond-backed structures into their products is already being investigated by financial institutions around the GCC. Banks are utilising Diamond Standard Bars, which offer audited custody and Shariah-compliant ownership, as a pilot for murabaha (cost-plus financing) agreements. In addition to broadening the pool of assets accessible to Islamic finance, this development supports the industry’s focus on moral and material investments.
