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July 10, 2014 at 09:20 PM
Okay, so maybe Brazil’s economy hasn’t been growing at quite the flashpoint it had been when Jim O’Neill referred to it, collectively with Russia, India and China, as a BRIC.
In fact, in May its industrial output fell for the third straight month, despite government stimulus efforts. Not only that, but May represented its second biggest budget gap, a deficit of 11.046 billion reais ($5 billion), according to its central bank, and consumer confidence fell as well in São Paulo, the country’s business center.
But that doesn’t mean there are no bright spots. And one of the brightest could be something investors might not have expected—the launch of a sharia-compliant equity fund.
The new fund is from Banco do Brasil SA, the largest bank in Latin America by assets. According to Carlos Takahashi, CEO of BB DTVM, the bank’s asset management division and Brazil’s largest fund manager, the new fund is expected to focus on shares of Brazilian commodity, energy, mining, oil and gas and retail companies that are traded on the São Paulo Stock Exchange (Bovespa) in the Middle East and Asia. Sharia law requires that profits must come from the goods or services provided by the companies in the fund and not from interest of any kind, which under the law is regarded as usury.
It will be managed in Brazil, and as early as April had 512 billion reais ($228 billion) of assets under management, according to Anbima, the local capital markets association. The fund is being launched in partnership with Singapore-based Bank of Asia (IBA).
When Banco do Brasil announced plans to launch the new fund, it was really just another step in the country’s relationship with Islamic customers. While the mere mention of sharia in the U.S. is enough to spook many Americans, Brazil already has a thriving trade with Islamic countries, one that has seen growth of more than 400% over the past 10 years by understanding that by following specialized rules for a group of customers with specialized requirements, it elevates itself into a go-to source for those customers when they need something else.
Brazil’s halal exports are just one example of how it has wooed and won a niche market with plenty of potential. Its Muslim population is small; amounting to less than 1% of the total, the country’s statistics agency IBGE says that at the end of 2010 there were approximately 35,000. (Other estimates go as high as 200,000, however.) But Brazil is home to a much larger concentration of Arab-Brazilians, perhaps as many as 12 million.
However, more broadly than sales to a relatively restricted domestic market, the global Muslim population is estimated at around 1.6 billion and Brazil has had no hesitation in pursuing opportunities outside its borders. It already has that valuable halal export trade in chickens and in beef with Middle Eastern and Asian nations.
