TRENDS: ISLAMIC FINANCE IN LATIN AMERICA
By Antonio Guerrero
With Islamic financial institutions seeking to expand
into emerging markets in Africa and Asia, could Latin America be
While Islamic financial institutions have aggressively expanded
through Asia and Africa, Latin America presents a new frontier.
With Latin American economies growing strongly, they may find the
$1 trillion global Islamic finance market an appealing alternative
to traditional financing sources.
"There is significant opportunity for the Islamic finance system
to provide an attractive alternative [to conventional bank
financing]," says Arti Sangar, a partner with the law firm of Diaz
Reus in Miami. Sangar, also licensed to practice in Dubai, feels
recent free trade pacts between Latin American and Middle Eastern
countries could become a catalyst. "With deeper trade and
investment links, there will be greater opportunity for financial
integration that could open new promises for Islamic finance and
Raquib Zaman, professor of finance and international business at
New York's Ithaca College and an expert on Islamic lending
practices, feels it is up to Latin Americans to pursue such
opportunities. "The only way that Islamic finance would be
supportable in any particular Latin American country would be if
the people of that country think their existing financial
institutions are not providing the type of services they want, and
that Islamic banking might be an appropriate alternative," he says.
"The support has to come from the potential customers." Zaman
believes Muslim populations in Argentina, Brazil, Venezuela,
Suriname, Trinidad & Tobago, Guyana and Panama could support
the arrival of Islamic financial institutions, as local communities
would provide potential customers.
Philip Guarino, president of Boston-based Elementi Consulting,
feels there are cultural considerations that may pose limits.
"Islamic finance probably doesn't have the same draw in Latin
America as it does in Asia and Africa," he says. "My belief is that
Latin America has a strong Catholic pull and still sees Islam with
some trepidation; this detracts from unrefined marketability." Yet,
Guarino agrees Brazil presents the greatest opportunities for
Islamic finance in the region.
Brazil's sheer market size could be a strong draw. "Brazil ... has
a large and well-regulated financial market and legal system that
could provide the tools with which to build local shariah-compliant
financing structures," says Glen Roberts, chair of the SNR Denton
law firm's Islamic finance and investment practice. "Brazil is also
appealing because the country itself has a significant agricultural
sector that should be appealing to sovereign funds from Saudi
Arabia, Qatar and elsewhere in the GCC that are investing for food
security in the Gulf region."
Qatar leads Middle Eastern investors in Brazil. Last October, Qatar
Holding invested $2.7 billion to take a 5% stake in Banco
Santander's Brazilian unit. Qatar's investment agency earlier in
2010 was eyeing a minority stake in Petrobras, Brazil's
state-controlled oil company, after already acquiring a $300
million stake in Brazil's Vale, the world's largest iron ore
producer. Brazil, on the other hand, has become one of the world's
largest exporters of halal foods and has hosted several Islamic
finance events to educate local market players.
According to Monem Salam, director of Islamic investing at Saturna
Capital, Islamic finance could prove beneficial for microfinance.
"As poverty is prevalent in most South American countries, rather
than implementing an interest-based microlending program that
charges well above usurious rates, one could look into an Islamic
micro-finance program, sharing in the profits of the small business
owners until they can buy out the partner," he says.
"The opportunities for the [Islamic] financial institutions are in
serving as a commercial bridge between Latin America and the
Islamic markets in the Gulf and Islamic Asia," says Roberts. "For
Latin American markets, the introduction of Islamic financial
institutions will likely expand the sources of capital available to
the region, which is crucial for development."