Diamond units – standardized as coins and bars, akin to precious metals of gold and silver – can be a high-value commodity to back Shariah compliant transactions. A consortium of Islamic banks will be exploring this proposition, Diamond Standard CEO Cormac Kinney shared with IFN Investor
A key hurdle previously was that of the diamond’s hardiness, resulting in them being treated as unique and therefore disagreements on certain qualities and values. This challenge was overcome with the creation of coins and bars that are now offered by his US firm, explained Cormac.
“Around 15 to 20 years ago, I was at a hedge fund where we traded copper, gold, silver and oil. But we couldn’t trade diamonds as a commodity. There was no price transparency because every diamond is different.”
With his background in software engineering, Cormac realized this was a computer science problem that he could solve – to make diamond offerings consistently transparent and fair. The eureka moment came with the realization that diamonds are mostly small and could be grouped together.
“We had to ensure each bar with small diamonds will have the same total carat weight, the same color and clarity in the aggregate. That is like a puzzle where the pieces have to fit together perfectly. It is acceptable for exchange trading if there is extra. But it can never be too little.”
Using this process, Diamond Standard has two offerings in the form of transparent units with embedded diamonds – together with digital storage technology that allows for easy remote auditing and recording of ownership details using blockchain technology.
The first is in the form of a coin – which currently trades at about US$3,900 each – while the bar with larger diamonds is valued 10 times more. Since these were made available around three years ago, with approval as US futures instruments by licensees of the Commodity Futures Trading Commission, Cormac said almost US$100 million worth of these coins and bars have been sold.
Taking these coins and bars to the Middle East, Cormac learned from banks with Shariah advisory teams that these Diamond Standard offerings could be viewed as suitable for Islamic finance and investment purposes. “There is no uncertainty, speculation or gambling. It is tangible and a deliverable asset.”
Cormac said another potential demand would be in the use of these diamond coins and bars as asset backing or commodity Murabahah that would typically underlie many Shariah compliant transactions. “I was made aware of a sizeable Murabahah market need for a commodity with a deliverable title.”
Because Diamond Standard also applies other compliance rules for sourcing with independent grading and confirmation services provided by the Gemological Institute of America and the International Gemological Institute – from ensuring no blood diamonds to enforcing sanctions against Russian supplies – Cormac said the firm has earned trust from industry players, which is further reinforced with strict audits conducted by Deloitte.
“We are forming a consortium of Islamic banks to advise on the utilization of Diamond Standard commodities for Islamic finance purposes.”
