Brazil and Recent Developments in Islamic Finance Initiatives

Brazil is hoping to leverage its business relations with the Islamic financial market, and during recent business trips to the Middle East Alvaro Taiar Jr and Felipe A Bitar have heard much positive feedback due to the country’s stable economy, size of market and well-regulated financial system. However, concerns remain over the lack of Shariah compliant assets to offer to investors.

Brazil already boasts a good level of trade flow with Islamic countries. Trade flow growth over the last 10 years has been above 400%. A good example of this is the export of Halal certified chicken. According to the Brazilian Aviculture Union (Ubabef), Brazil exported 1.48 billion tons of chicken to Middle Eastern countries in 2013. The good results are the consequence of a partnership in which the Brazilian market respects and complies with the requirements of the Islamic market.

The good news is that the goal of transforming Brazil into an economic and financial hub in South America for Islamic finance investors now seems to be coming increasingly within reach, as illustrated by a number of recent initiatives.

Shariah compliant equity fund

In the first week of June, one of the largest Brazilian fund managers created, after three years of study, an investment fund specifically for Islamic investors. It is an equity portfolio with underlying assets which observe the Shariah law.

Reports indicate the fund manager invested one year of careful work to build a premium portfolio, which is mostly concentrated on Brazilian commodities and the mining, oil and gas sectors. In addition to these being sectors that respect Islamic principles, this manager believes such stocks would have a positive outlook in the long term. Construction and public services are also part of the portfolio.

The manager has signed a partnership with the Islamic Bank of Asia, which helped define the rules for the fund and analysed whether the asset composition of the fund was Shariah compliant.


Founded in 2010, BRAiN — Brasil Investimentos & Negócios — has the mission to create and develop a favourable and sustainable environment to transform Brazil into one of the international investment and business hubs, benefiting all Latin America.

In April, 2014, BRAiN promoted an Islamic finance workshop with participation by representatives of Islamic financial institutions, a director of the Brazilian SEC, and representatives of the Finance Ministry and Brazilian Central Bank. PwC specialists in Islamic finance had the honour to be speakers as well.

The goal of the workshop was to share information and discuss on how to better leverage the potential of the Islamic finance market, with the Brazilian economy.

BEST (Brazil: Excellence in Securities Transactions)

BEST was founded in 2004 with the goal of leveraging the internationalisation of the Brazilian financial market. A BEST delegation just came back from the Middle East, where it visited Abu Dhabi, Dubai, Riyadh, Kuwait and Qatar. Formed by Brazilian government and private market representatives, the delegation met with more than 90 executives of 24 institutions, including banks, asset managers, family offices, regulators, private companies and government representatives.

With the goal of leveraging the sharing of information, the Islamic finance community was brought to the discussion a few times and the delegation came back with the purpose of supporting the growth of the portfolio of Brazilian Shariah compliant assets.
Change in Brazilian tax rules

Recent Brazilian legislation changes have guaranteed beneficial tax treatments for non-resident sovereign wealth fund investors in some financial assets. This change is very positive to attract new foreign investors to the country, notably from the Middle East and Asia.


Despite the coming together of the Brazilian and Islamic financial communities, some existing challenges still need to be overcome, mostly on the regulatory, accounting and tax fronts: such as (i) what prevails for accounting and tax purposes — the substance or the form of the contracts, (ii) how to account for time value of money in a non-interest bond, (iii) responsibility for the exposure of default risk, and (iv) limitations on banks to acquire and sell non-financial assets.

Foreign investors are not yet fully aware of the Brazilian complex tax structure, tax benefits, tax-treaties, etc. and this may be a difficulty when pricing transactions and the expected net results.


Brazilian initiatives to move closer to the Islamic financial services industry are a now a more concrete reality. The creation of a fund designed to attract Islamic investors, in compliance with Shariah principles, as well as the events promoted by relevant Brazilian financial and capital market institutions, demonstrate the interest of Brazil in strengthening its connection with Islamic investors, reproducing in the financial market the recent successes already achieved in some sectors of commercial trading between Brazil and Islamic countries. The reduction of the asymmetries of information and the convergence of accounting criteria will contribute to the reduction of challenges and doubts that might persist.


Alvaro Taiar Jr is a tax partner at PwC who leads the financial services tax practice inBrazil and a member of the PwC Global Islamic Finance Group. Felipe A Bitar is a tax manager based in the São Paulo office of PwC. He is also a member of PwC’s Global Islamic Finance Group in Brazil. This article first appeared in Islamic Finance News (11 June 2014, Volume 11, Issue 23, Page 32). For more information, please visit