São Paulo – The Bank of Brazil is preparing to launch a fund in compliance with the rules of the sharia, i.e. Islamic law, in September or October this year. The fund will deal stock of Brazilian companies listed on the São Paulo Stock Exchange (Bovespa) in the Middle East and Asia.
“We are expecting equity ranging from US$ 50 million to US$ 500 million within a year, on average,” said Carlos Takahashi, chairman of BB DTVM, the bank’s resource management division, in an interview to ANBA. The figures are the minimum and maximum equity expected.
The Bank of Brazil is launching the fund in partnership with the Islamic Bank of Asia (IBA), based in Singapore. The Asian bank will provide support to its Brazilian counterpart in certification of the stock traded.
In order for the fund to comply with the sharia, the yields of the traded shares must originate from the results of services provided by companies, rather than from interest of any sort, which would characterize usury, a practice forbidden by Islamic law.
“Companies’ results and figures must be in keeping with their main activity,” says Takahashi, explaining that the fund may be required to exchange shares in case any type of profit from usury-related practices is detected.
The fund will trade in shares of Brazilian commodity, energy, oil and gas, mining and retail companies. According to Takahashi, approximately 20 companies have been approved for their shares to be traded by the Islamic fund. In the Middle East, the stock will be sold by London’s BB Securities; in Asia, the trader will be a brokerage firm established by the Bank of Brazil in Singapore a year ago.
In May, Bank of Brazil delegates met with investors from the United Arab Emirates, Singapore and Hong Kong to assess potential interest in the new fund. The BB DTVM chairman noted that apart from the Middle East, some Asian countries have large Muslim populations, such as Indonesia, India, Singapore and Malaysia.
Companies such as banks and beverage manufacturers, for instance, cannot be a part of the fund, for they are not compliant with Islamic law.
Even though domestic trading is not the fund’s initial focus, Takahashi does not rule out this possibility. “Should we see that there is interest in it, we will trade from Brazil,” he said.
*Translated by Gabriel Pomerancblum
