For many years, the Brazilian financial market had been discussing how it could be possible to have Islamic banking activity to be effectively functional in Brazil. Since Brazil became the most relevant producer and exporter of Halal animal protein, and is preparing itself more and more to produce other sorts of Halal products, it is almost natural that the interest in Islamic banking activities increases and induces the main players of the market to look for ways of making such a practice possible.
Review of 2021
In the last decade, we saw growing interest in the subject by means of many events that had been organized by universities; the Arab Brazilian Chamber of Commerce; and Fambras, the main Halal certification organization, among other entities, and in 2021 it was no different, with several panels of discussion being organized and made feasible via the internet, despite all the difficulties imposed by the COVID-19 pandemic. Anyway, 2021 was not only about replicating what happened in the years before; it brought more light to the subject.
In April 2021, a formal application was filed at the Senate for a discussion of what should be necessary to be adjusted or reviewed in the Brazilian tax environment so as to make Islamic banking activity viable in the country.
The Brazilian tax environment is complex and manifold and similar to what happened in other countries, some specific adjustments would be necessary.
A good example refers to the utilization of SPVs in many Islamic structures, a tool also used in other financial structures. But the transfer of assets to and from such an SPV would trigger the ITBI tax, which is applicable on the transfer of property or real estate in Brazil.
The good news is that there are already some exceptions in the law regarding the application of such tax, which could also be considered in an Islamic structure, but some legal adaptation would be necessary as happened in other countries.
As stated in the informative note produced by the advisors to the Senate on the subject, there is a certain diversity in the way each country has promoted the legislative innovations necessary for the incorporation or feasibility of Islamic finance in the legal system. In any case, SPVs and the special tax treatment on asset transfers are essential aspects adapted in each jurisdiction.
Generally speaking, countries governed by secular laws do not make explicit reference to the Shariah religion or principles, nor do they guarantee the adequacy of instruments to the Islamic doctrine. However, the instruments are objectively defined in the aspects demanded by the Islamic investor, which satisfy the religious principles, even without directly referring them.
This discussion that will happen in Congress with the presence of senators and authorities from the central bank and the Brazilian Securities Exchange Commission, in addition to experts on the subject, will certainly be a landmark in the establishment of Islamic banking activities in Brazil.
On the other hand, an important achievement in the year was in the academic field by means of some articles published, which evidence local interest and the deepening of knowledge on the subject. It is worth noting the dedication of Ahmed Sameer El Khatib, a Brazilian, an Arab descendent and a postdoctoral fellow at University of São Paulo.
Ahmed has continuously published articles since 2008 and in 2021 made great contributions to the industry via the publishing of four relevant studies: ‘The influence of the geographic environment on the performance of Islamic banks’ — Revista Catarinense da Ciência Contábil, vol 20, p. 1-13, 2020; ‘A study on the influence of the board of directors on the corporate social responsibility of Islamic banks. Cap accounting and management (ufsc)’, v. 2019, p. 53-65, 2020; ‘Digital currencies and religion: the use of bitcoin in Islamic finance’ — Scientific Journal Hermes, vol 27, p. 296, 2020; ‘Religion and finance’ — Journal of administration, accounting sciences and sustainability, v. 9, p. 73-84, 2020.
To close the year on a positive note, a relevant debate will take place in Sao Paulo in December during the Global Halal Brazil – Business Forum, with discussions on how the Islamic banking growth may contribute to the improvement of the world economy and the prospects of investments in the Halal industry in Brazil.
Preview of 2022
It is expected that 2022 will be even more rewarding than 2021, with the expansion of the Halal industry, the continuation of the discussions in Congress and more relevant articles being published, not forgetting the great possibility of having the opening of some windows in the capital markets and also, why not the first issuance of a Sukuk facility by a Brazilian issuer?
Conclusion
In conclusion, we may say that the initiative of Congress and the valuable academic production in the year, in addition to the continuous flow of events bringing discussions on how to have an active Islamic banking industry in the country, are evidence of how Brazil is determined, and investing, to get closer to the Islamic world and become a partner in a fruitful way for both sides.
Angela Martins is the chief representative of the Brazil Representative Office of First Abu Dhabi Bank. She can be contacted at [email protected].