New Fatwa initiative ushers in new era for $5 trillion Islamic finance

Khaleej Times

2 days ago

Diamond Standard Co., the producer of the world's only regulator-approved natural diamond commodities, has secured a historic Fatwa, marking a landmark moment for the for $5 trillion global Islamic finance industry.
Issued by Sheikh Dr. Mohamed Ali Elgari, a towering figure in Islamic finance, the new Fatwa endorses the use of diamond commodities as a Shariah-compliant solution for Islamic financial applications, particularly commodity Murabaha.
Announced on May 29 in Dubai, the development promises to reshape the fast-growing Islamic finance sector, blending time-honoured ethical principles with cutting-edge technology to create a more efficient, transparent, and accessible financial ecosystem.
Sheikh Dr. Elgari, a former professor and director of the Centre for Research in Islamic Economics at King Abdulaziz University, brings unparalleled authority to this endorsement. His extensive experience includes serving on Shariah boards for prestigious institutions like the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Fiqh Academy, and major banks such as Abu Dhabi Islamic Bank, HSBC, and Standard Chartered.
His Fatwa validates diamond commodities as a viable, Shariah-compliant asset, addressing longstanding challenges in Islamic finance where interest-based lending is prohibited.
Islamic finance, governed by Shariah principles, requires transactions to be asset-backed, often through structures like commodity Murabaha, where a bank purchases an asset and sells it to a client at a markup, payable in installments.
Historically, metals like nickel, copper, or aluminum have been used for these transactions, often as paper-based options or warrants. However, the introduction of AAOIFI Standard 62, which mandates physical delivery of the commodity's title to the borrower, has rendered these practices non-compliant.
Additionally, gold, silver, and food commodities are prohibited for Murabaha, and metals incur high storage and delivery costs, creating inefficiencies for Islamic banks. Diamond Standard's solution is a game-changer. Its physical diamond commodities—coins and bars—are optimised sets of diamonds sealed with a wireless computer chip, ensuring transparency and uniformity. These commodities are fully deliverable, fungible, and tradeable on spot exchanges with daily prices reported by Bloomberg. The embedded chip enables instant title transfer and remote audits via a public blockchain, eliminating uncertainty and ensuring compliance with Shariah requirements.
With custody and delivery costs up to 97 per cent lower than those for metals like copper, diamond commodities offer a cost-effective and practical alternative. This innovation has also been approved for settling futures and options regulated by the U.S. Commodity Futures Trading Commission (CFTC), with internal audits conducted by Deloitte, reinforcing its credibility.
The Fatwa's issuance follows a request from a consortium of Islamic banks seeking a Shariah-compliant Murabaha solution with audited physical custody in a Muslim-majority country. Diamond Standard has responded by establishing a commodity holding and trading company in the GCC region, backed by $280 million in capital commitments. This entity will supply diamond commodities to Islamic financial institutions and trading platforms, creating a robust market for Murabaha transactions.
It will also offer a listed fund for equity and Sukuk investors, enabling them to invest in diamonds as a hard asset with potential for value appreciation driven by both Islamic and broader investment demand. The initiative is expected to generate over 200 jobs in the GCC, spanning commodity operations, trading, custody, and Islamic finance roles, while boosting regional manufacturing, exports, and trade.
To further enhance accessibility, Diamond Standard has partnered with the Dubai Multi Commodities Centre (DMCC) to provide audited, tax-free custody for its commodities. This strategic move, announced alongside the Fatwa, eliminates tariffs that would apply to diamonds entering markets like the US, benefiting Islamic banks and investors.
The DMCC, a leading hub for global trade, is already recognised for its Shariah-compliant Tradeflow platform, which supports commodity Murabaha and aligns with AAOIFI standards, as certified by its Shariah Supervisory Board, which includes Dr. Elgari. This partnership underscores Dubai's growing role as a global Islamic finance hub, with the UAE's Islamic finance industry valued at over $285 billion in Q1 2025, according to Fitch Ratings.
Cormac Kinney, founder and CEO of Diamond Standard, emphasised the transformative potential of this development: 'We set out to unlock $1.2 trillion of natural diamonds as an investment asset, but their dense value, paired with modern technology, has made them ideal for Islamic finance. We are honored to strengthen Islamic values through this innovation.'
By fusing blockchain technology with the intrinsic value of diamonds, Diamond Standard is pioneering a new asset class that aligns centuries-old Shariah principles with 21st-century financial innovation.
This breakthrough comes at a time of rapid growth for Islamic finance in the UAE and GCC. The UAE's new strategy, announced in May 2025, aims to double Islamic banking assets to Dh2.56 trillion by 2031 and boost Sukuk issuances to over Dh660 billion, reinforcing the region's leadership in the $2.44 trillion global Islamic finance industry. Diamond Standard's Fatwa-approved commodities position it at the forefront of this expansion, offering a scalable solution that enhances financial inclusion and efficiency.
The impact of this Fatwa extends beyond finance, promising to democratize access to a $1.2 trillion natural resource while fostering economic growth in the GCC. By addressing compliance challenges, reducing costs, and leveraging blockchain for transparency, Diamond Standard is not only redefining commodity Murabaha but also paving the way for a more inclusive and innovative Islamic finance ecosystem.