[06/11/2008 – 09:58]
The information was supplied by the international director at bank ABC Brazil, Angela Martins, who specialises on the subject. Given the volume of funds, she said Brazil should look closely at the segment.
|Sector has brutal growth, says ABC executive|
São Paulo – Islamic banks, i.e. financial institutions that operate according to religious principles, are currently managing approximately US$ 500 billion worldwide. The information was given yesterday (10th) by the international director at the ABC Brazil Bank, Angela Martins, during a lecture held at the head office of the Brazilian Association of Capital Market Analysts and Professionals (Apimec-SP), in the southeastern Brazilian city of São Paulo. Angela specialises on the subject and wrote the book “Islamic Banking,” issued by publishing house QualityMark.
“The set of Islamic banking institutions is expanding at an phenomenal rate. This is a new industry, but it’s growth is brutal,” she stated. Just to give an idea of the sector’s broadening, little less than four years ago, as of the launch of her book, Angela said in an interview to ANBA that those banks were then managing funds of approximately US$ 200 billion.
Since then, the price of oil has more than tripled, flooding producer countries – many of which are Islamic – with capital. According to Angela, the current volume of funds managed by Muslims is estimated to touch at US$ 1.3 trillion, thus hinting at the space that the segment has to expand.
To that extent, she claims that Brazil should look intently at this activity, both in terms of availability of funds in oil-producing countries, and expansion of trade with nations in which Muslim populations reside, especially Arab countries. “This is an industry with a promising future, because the volumes of capital that it can attract are quite sizeable,” she declared.
Presently, the segment is little known in Brazil. The ABC Bank, which is controlled by the Arab Banking Corporation, from Bahrain, even offers contracts structured according to the Sharia. Although they are negotiated in Brazil, these contracts are established abroad, though, as Brazilian financial regulations do not provide for certain practices widely adopted in the Islamic system. This, however, might change, and is being discussed by financial agencies.
For the development
The Islamic system is based on the notion that “money exists for the development of the world,” meaning that it cannot be a commodity in itself. Therefore, the system does not allow for usury, so it vetoes the charging of interest; forbids speculation and excessive risk; and cannot be used whenever the object of contract is deemed illegal by religion, as would be the case with funding the purchase of a batch of alcoholic beverage, or building a factory for products made of pork meat.
One of the most widely used contracts, according to Angela, is the “Murabaha”, used for financing purchase and sale deals. As the bank cannot charge interest, it buys the product from the supplier in a lump sum, and then sells it in instalments to the customer, taking on any eventual risks involved in the deal, and earning the right to profit from the operation. “The fact that the bank assumes this risk adds value to the deal, therefore the bank is entitled to profiting from it,” said the executive.
Other models are the “Musharaka” and the “Istisna,” used for issuing “Sukuk” bonds, which are similar to Eurobonds (fixed-income securities issued by governments or companies to shop for funds in foreign countries). “The first ‘Global Sukuk’ ever was issued in 2002 by the government of Bahrain,” stated Angela.
She also explained that being a Muslim is not mandatory for one to use these contracts. A Brazilian company, for instance, may issue “Sukuks” in the international market in order to fund an operation that is in accordance with the Sharia, such as the construction of a Halal food plant. “Brazil can adapt and offer these products,” she said.
In addition to local banks based in Muslim countries, various international banks have established divisions turned to Islamic contracts, such as Citibank and HSBC. Deals within this system are being closed in many non-Muslim countries, such as Japan, Hong Kong and especially Britain.
However, Angela underscored the fact that the Islamic financial system is not yet a sector that offers “off-the-shelf products.” In other words, there is not an international standard. There are different schools of Muslim thinking, therefore that which is accepted in one country or by one institution may not be accepted by another. “The industry is still developing,” she said. According to her, each institution has a Sharia Board that assesses the validity of contracts. Hence the need for operators to have thorough knowledge of the system.
*Translated by Gabriel Pomerancblum