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ThinkAdvisor : Banco do Brasil Sharia Fund Spurring Investor Interest

 

Banco do Brasil Sharia Fund Spurring Investor Interest

JULY 10, 2014

Brazil also exports halal sugar, grain and orange juice, among other things, to the six countries of the Gulf Cooperation Council (GCC)—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. And in 2013 the first sharia-compliant transaction to finance a sugar and ethanol producer was executed in Brazil’s Mato Grosso do Sul state. More asset-backed (and sharia-compliant) transactions have followed in Brazil’s agriculture sector.

With its large population and subsequent need for infrastructure projects—highlighted in the buildup to the World Cup, and a good fit for sharia—Brazil has further broadened its approach to winning Islamic investment money. But it is certainly not the first country to try to coax Islamic investors—even nonreligious ones—via compliance with Islamic rules. While the U.S. has lagged behind in this regard, financial centers from London to numerous countries in Africa, including Nigeria and Senegal, are eager to cash in on such a large and thriving market segment, with the U.K.’s Prime Minister David Cameron going so far as to declare that he wanted London to become a global center for Islamic finance.

After all, the Islamic finance sector in the last 30 years, according to the Global Islamic Financial Review, has grown to $1.6 trillion in assets. And according to Ernst & Young, over the past three years, the top 20 Islamic banks globally have seen growth of 16% per year. Not only that, but EY has predicted that lenders who observe sharia will more than double Islamic banking assets by 2018 to $3.4 trillion, with 70 million customers—an increase over 2013’s 38 million.

About those nonreligious investors: many who seek socially responsible investments, whether religious or not, see the rules of sharia as helping to provide such projects, particularly in the sukuk market, since sukuk—comparable to bonds—are understood to be used for such projects. Not only that, but sharia-compliant investments can provide an additional element of diversification. Sharia is also seen, rightly or wrongly, as providing an extra level of protection for investors, due to the strictness of its requirements.

Regarding the tough slog that sharia-compliant investing has often had in the U.S., Charles Sizemore, a portfolio manager for online investing marketplace Covestor, said, "This tends to be a politically charged issue, particularly in the 13 years that have passed since the 9/11 attacks by Al Queda, But it really doesn't need to be. It's a marketing gimmick to differentiate an investment product from the competition in the eyes of strictly observant Muslim investors. And this is nothing new in the West.”

 

Sizemore said, “London competes with Dubai as the center of ‘Islamic finance’ despite being a Western Christian country on the northwestern fringe of Europe. Britain has gone so far as to announce its intent to launch sharia-compliant ‘sukuk’ bonds. And if you want to go really far back in time, Jewish and Christian merchants in the Middle East and Asia often engaged in Islamic contracts during the days of the Caliphate, even between each other, because of their universal enforceability in Muslim lands.

Sizemore also pointed out an important difference between sharia-compliant and conventional investments: “[M]ore recently, emerging markets agree to ‘Western’ terms when raising capital because doing so reduces their borrowing costs, though this sometimes has unintended consequences. Consider the recent case of Argentina and its creditors duking it out in the U.S. court system rather than the Argentine court system. It may be distasteful to many Westerners, but if it lowers the cost of capital, it's hard to argue against it too vigorously.”


 
ThinkAdvisor

Banco do Brasil Sharia Fund Spurring Investor Interest

JULY 10, 2014

Brazil also exports halal sugar, grain and orange juice, among other things, to the six countries of the Gulf Cooperation Council (GCC)—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. And in 2013 the first sharia-compliant transaction to finance a sugar and ethanol producer was executed in Brazil’s Mato Grosso do Sul state. More asset-backed (and sharia-compliant) transactions have followed in Brazil’s agriculture sector.

With its large population and subsequent need for infrastructure projects—highlighted in the buildup to the World Cup, and a good fit for sharia—Brazil has further broadened its approach to winning Islamic investment money. But it is certainly not the first country to try to coax Islamic investors—even nonreligious ones—via compliance with Islamic rules. While the U.S. has lagged behind in this regard, financial centers from London to numerous countries in Africa, including Nigeria and Senegal, are eager to cash in on such a large and thriving market segment, with the U.K.’s Prime Minister David Cameron going so far as to declare that he wanted London to become a global center for Islamic finance.

After all, the Islamic finance sector in the last 30 years, according to the Global Islamic Financial Review, has grown to $1.6 trillion in assets. And according to Ernst & Young, over the past three years, the top 20 Islamic banks globally have seen growth of 16% per year. Not only that, but EY has predicted that lenders who observe sharia will more than double Islamic banking assets by 2018 to $3.4 trillion, with 70 million customers—an increase over 2013’s 38 million.

About those nonreligious investors: many who seek socially responsible investments, whether religious or not, see the rules of sharia as helping to provide such projects, particularly in the sukuk market, since sukuk—comparable to bonds—are understood to be used for such projects. Not only that, but sharia-compliant investments can provide an additional element of diversification. Sharia is also seen, rightly or wrongly, as providing an extra level of protection for investors, due to the strictness of its requirements.

Regarding the tough slog that sharia-compliant investing has often had in the U.S., Charles Sizemore, a portfolio manager for online investing marketplace Covestor, said, "This tends to be a politically charged issue, particularly in the 13 years that have passed since the 9/11 attacks by Al Queda, But it really doesn't need to be. It's a marketing gimmick to differentiate an investment product from the competition in the eyes of strictly observant Muslim investors. And this is nothing new in the West.”

 

Sizemore said, “London competes with Dubai as the center of ‘Islamic finance’ despite being a Western Christian country on the northwestern fringe of Europe. Britain has gone so far as to announce its intent to launch sharia-compliant ‘sukuk’ bonds. And if you want to go really far back in time, Jewish and Christian merchants in the Middle East and Asia often engaged in Islamic contracts during the days of the Caliphate, even between each other, because of their universal enforceability in Muslim lands.

Sizemore also pointed out an important difference between sharia-compliant and conventional investments: “[M]ore recently, emerging markets agree to ‘Western’ terms when raising capital because doing so reduces their borrowing costs, though this sometimes has unintended consequences. Consider the recent case of Argentina and its creditors duking it out in the U.S. court system rather than the Argentine court system. It may be distasteful to many Westerners, but if it lowers the cost of capital, it's hard to argue against it too vigorously.”

www.thinkadvisor.com/2014/07/10/banco-do-brasil-sharia-fund-spurring-investor-inte


 
Posted Date : 21 July 2014

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