This paper examines how Islamic financial instruments — notably murabaha, sukuk, and qard hasan — are being adapted by cooperatives, community banks, and credit unions across Latin America. Drawing on fieldwork in Brazil, Argentina, and Colombia between 2021 and 2023, it argues that the region's cooperative banking tradition offers unusually fertile ground for Sharia-compliant finance, and that adoption has been driven less by Muslim demand than by ethical-finance movements seeking alternatives to interest-based credit.
Key findings
Sharia-compliant products are offered by 34 cooperative institutions across the region, up from 9 in 2015.
Only 18% of clients using these products identify as Muslim — the majority are drawn by ethical-finance principles.
Regulatory ambiguity, not demand, is the primary constraint on growth in all three countries studied.
Brazil's cooperative credit framework required the fewest legal adaptations to accommodate murabaha contracts.
Background
Islamic finance arrived in Latin America through two distinct channels. The first was diaspora-driven: Syrian-Lebanese communities that settled in São Paulo and Buenos Aires in the early twentieth century built informal mutual-aid funds that operated on interest-free principles long before the term "Islamic banking" existed. The second, and more consequential for present-day institutions, was the arrival of Gulf capital in the 2000s seeking agricultural and infrastructure exposure.
What makes the region distinctive is that neither channel produced a retail Islamic bank. Instead, Sharia-compliant instruments were absorbed into an existing and deeply rooted cooperative banking sector — one that already held ethical objections to speculative lending.
Methodology
The study combines 47 semi-structured interviews with cooperative directors, regulators, and clients across six cities with a document review of 34 institutions offering Sharia-compliant products. Financial data was drawn from central bank filings in Brazil, Argentina, and Colombia covering 2015 to 2023. Interviews were conducted in Portuguese and Spanish and coded thematically.
“We did not adopt these contracts because our members are Muslim. We adopted them because our members were already refusing to lend at interest.”
— Cooperative director, Curitiba, interviewed March 2022
Findings and discussion
Across all three countries, the binding constraint on Sharia-compliant finance is regulatory rather than commercial. Central bank frameworks classify murabaha as a commodity trade rather than a credit product, which triggers sales-tax treatment that renders it uncompetitive against conventional loans. Brazil is the partial exception: its cooperative credit law already permits profit-sharing structures, requiring only minor contractual adaptation.
The demand profile inverts the assumption underlying most Gulf-led market entries. Institutions that marketed these products primarily to Muslim communities saw negligible uptake; those that framed them within the language of ethical and solidarity finance grew steadily. This suggests the region's opportunity lies not in serving its comparatively small Muslim population, but in a much broader constituency already ideologically aligned with interest-free credit.
References
Hassan, A. (2023). Cooperative Credit and Sharia Compliance in the Southern Cone. Journal of Islamic Economics, 41(2), 118–147.
Nasser, L. (2021). Syrian-Lebanese Mutual Aid Societies in São Paulo, 1890–1960. Revista de História, 178, 44–71.
Banco Central do Brasil. (2023). Relatório de Cooperativas de Crédito. Brasília.
Salim, R. & Delgado, O. (2022). Halal Certification Networks Across the Southern Cone. Working Paper 14, Iberoblam Observatory.
