Dr. Issahaku Yakubu, Manager, Business Commercial Banking, Stanbic Bank Ghana
The Government of Ghana’s reset agenda has begun with clear indications of a purposeful drive to resolve the myriad socio-economic issues.
Early signs point in the right direction; from fiscal consolidation policies through to monetary policy. Over the past five months, there seems to be a wave of optimism leading to a revival in public trust, improvement in market sentiments, restoration of investor confidence and economic recovery.
Even though no transformative interventions have been implemented yet there is a show of intentionality from the fiscal side from the Minister of Finance, and a sound monetary stance by the Bank of Ghana. The panacea to our economic woes is not in linking the existing dots but purposefully creating new dots because the existing dots are proven to be obsolete and inadequate.
The Ghanaian economy requires out-of-the-box solutions to propel sustained economic recovery. It is time for Ghana to introduce a banking system that encourages ‘environmentally and socially conscious practices’, thus a sustainable, ethical, and resilient banking system to ensure long-term economic growth and stability.
The appointment of a Monetary Policy Committee advisor, in the person of Professor John Gartchie Gatsi, to lead BoG’s expert team to operationalise Islamic Banking in Ghana (an alternative financial system, a financial model compliant with Islamic Shariah law) is a welcome strategic initiative toward the implementation of Islamic Banking. This disruptive approach to finance, which actively bridges faith and finance, could be the innovative solution our economy needs.
Islamic finance is simply a financial system that aligns with the ethos and value system of Islam. The value system of Abrahamic finance prohibits any business operation involving riba (interest); uncertainty or ambiguity relating to the subject matter, terms and conditions of a contract; gambling; speculation; unjust enrichment; exploitation/unfair trade practices; dealing in pork, alcohol, intoxicants; arms & ammunition; pornography and; other transactions, products and services which are not compliant with the principles of Islamic commercial jurisprudence.
The 1963 community-centric banking initiative pioneered by Ahmad El Najjar in Mit Ghamr, Egypt, is now valued in the trillions. The total assets value of global Islamic finance markets amounted to about $4.5 trillion in 2024, $5.9 trillion in 2026, and $6.67 trillion by 2027 (Statista, Worldwide Value of Islamic Finance Assets, 2024).
Islamic financial institutions have grown to more than 1,670 globally, including 566 banks and more than 1,900 mutual funds. The industry has expanded rapidly over the last decade, with an average asset expansion rate of around 16% yearly since 2006. In Africa, Within the span of two years (2023-2024), the three largest economies in Africa – Nigeria, Egypt and South Africa have raised an aggregate equivalent of $3.045 billion through the issuance of “Sukuk”, which is an Islamic debt instrument which contributes 2% of Global Sukuk volumes and accounts for 70% of African global sukuk issuance since 2014.,
Basic Principles of Islamic Banking
Based on Islamic law, four main principles govern the activities of Islamic banks. First, IB prohibits Riba, the taking or giving of interest, which is believed to be an unequal trade of values in exchange. Wealth must be created from legitimate trade and with an underlying asset (it is not permissible to use money to make money). The Quran views the charge of interest as unethical and, thus, prohibits it among all people who respect and believe in Allah. Second, IBF prohibits Gharar.
Gharar refers to economic transactions that have absolute or excessive uncertainty or risk in business transactions. Gambling, deceit or fraudulent activities involve uncertainties that cause significant loss to one party and unreasonable profit to the other party.
Third, IBF prohibits Maisir. Maisir refers to unlawful, unethical activities, sinful and socially irresponsible activities, such as bribery, prostitution, drug abuse, alcohol, sale and consumption of pork, and gambling.
These bad business practices are considered forbidden behaviour (haram) to all Muslims because they adversely affect justice and fairness in financial transactions. Fourth, IBF ensures that financial transactions are directly or indirectly linked to a real economic transaction and have real economic value for both contractual parties and society.
Islamic Banking sets of solutions
According to the World Bank, the primary instruments of Islamic banking include: Murabaha: Cost-plus financing; Mudaraba: Profit sharing; Ijara: Operational or financial leasing contracts; Musharaka: Equity participation contracts; Bay’salam: Forward sale; Sukuk: Certificates of ownership.
These instruments constitute the ‘basic building blocks’ for developing a wide range of more complex financial instruments. Islamic banking is also considered a culturally distinct form of ethical investing and shares numerous synergies with ESG investing as both are sustainable, stakeholder-focused, and socially responsible.
Importance of Islamic Banking
Islamic banking is essential as it provides an ethical and socially responsible approach to finance, aligning with the principles of Islam and promoting fairness and transparency. It encourages risk-sharing, connects the financial sector with the real economy, and fosters financial inclusion. Furthermore, Islamic banking discourages speculation and concentrates on investments linked to tangible assets and genuine economic activities. As Ghana seeks to diversify its economy, reduce reliance on debt financing, and enhance financial stability, Islamic banking offers a sustainable alternative.
With its stringent internal controls, ethical banking principles, and risk-sharing model, it can deliver the stability that conventional banking has struggled to maintain. Traditional banking, founded on high-risk lending and speculative investments, was exposed as a deeply flawed system during the domestic debt exchange programme. Islamic banking prevents excessive risk-taking and unsustainable debt accumulation.
Introducing Islamic banking can provide an alternative financing model that does not impose unsustainable debt on the country. Through instruments such as Sukuk (Islamic bonds), Ghana can fund significant infrastructure projects like road construction, railway expansion, the revival of TOR, the reintroduction of state-owned airlines, and housing initiatives without increasing national debt.
Islamic banking can foster financial inclusion by offering products that align with the ethical and religious beliefs of many Ghanaians. Most secular economies, including the US, the UK, Malaysia, and South Africa, have incorporated Islamic banking into their financial framework.
With over 42 per cent of Ghanaians being unbanked, primarily due to a lack of trust in the conventional financial system, Islamic banking can enhance financial inclusion by offering products that align with the ethical and religious beliefs of many Ghanaians.
Ghana is encouraged to join the Islamic Development Bank to attract direct investment from Islamic financial institutions through trade finance and technical cooperation, as membership would enable Ghana to explore options for raising funds to develop its economy without the burden of interest payments. We require Islamic banking to support the conventional banking system currently in place in the country. It will provide an opportunity to deepen financial inclusion and infrastructure financing for both the government and private sectors.
Strategies to achieve the effective introduction of Islamic Banking in Ghana.
Establishing a Shariah and Hajj Advisory Council/Authority: Compliance with Shariah principles is crucial for non-interest banking and finance. A Shariah review and advisory framework is essential to ensure such compliance. An effective Shariah framework will harmonise interpretations, enhance regulatory and supervisory oversight of the industry, and cultivate a pool of skilled Shariah advisers.
Consequently, all banks and financial institutions with non-interest operations under the purview of the Central Bank of Ghana will be required to create a Shariah advisory body as part of their governance structure, to be known as the “Shariah Advisory Committee” (SAC). It shall be the duty and responsibility of the SAC to be accountable for all Shariah decisions, opinions, and views they provide.
The Advisory Committee of Experts must possess knowledge, expertise, and experience in economics or finance—particularly in Islamic Finance and Islamic Jurisprudence—with a focus on Islamic Commercial Jurisprudence. It is essential for the Bank of Ghana to ensure the effective incorporation of Sharia law into Ghana’s banking regulations for the successful management and operations of IBF institutions.
Review or comprehensive amendment of Act 2016 (Act 930) to include, among other things, critical elements of Islamic banking, and to amend the Deposit-taking Institutions Act, 2016 (Act 930) to include ethical banking and achieve financial inclusion. While section 18(r) of Act 930, the Banks and Specialised Deposit-Taking Institutions Act of 2016, permits banks to offer non-interest banking services, there is currently no legislation governing the licensing process or governance structure for non-interest banks.
There is a need to review the banking laws, such as Act 930 and Act 929, which pertain to capital market activities, to accommodate the Islamic capital market, as well as a revision of Act 1061 to incorporate “Takaful” (Islamic Insurance). Regulatory clarity and a framework are needed to support ethical investment without confusion.
Capacity building for the BOG, SEC, Ministry of Finance, Insurance Commission, courts, as well as universal banks and allied financial institutions on Sharia law/jurisprudence and Islamic banking is essential. Sending staff to central banks currently implementing Islamic banking to study their regulatory frameworks and other nuances will be critical for the successful implementation of Islamic banking.
Some banks operating in Ghana, such as Stanbic, Zenith, Access, and Standard Chartered, possess expertise in Islamic banking in capital markets from Nigeria, Kenya, South Africa, and the United Kingdom, allowing them to leverage their internal expertise for a smooth adoption and take-off.
Public education on Islamic finance/ Consumer behaviour challenges: Aside from Sharia governance issues, potential consumers’ perceptions and behaviours towards Islamic Banking in Ghana are likely to pose challenges to their adoption of Islamic banking.
In this context, consumers will need to overcome various perceptual and behavioural challenges, such as a low level of knowledge and understanding of Islamic banking concepts, attitudes towards Islamic banking finance, perceived benefits, perceived risks, and concerns regarding violence and perceived religious factors.
Readiness to comply with Sharia law is an additional issue; some potential consumers, particularly non-Muslims, may struggle to adopt IBF because they perceive it as a way of promoting the Islamic religion in Ghana, converting bank customers to Islam, or Islamising non-Islamic countries like Ghana. In European countries where IBF has been introduced, the establishment of Islamic banks has not led to Christians converting to Islam. Most non-Muslims in Ghana are Christians, and as such, they may find it challenging to comply with Sharia due to religious sentiments.
A thorough understanding and knowledge of IBF could help dispel these misconceptions and facilitate the adoption of IB among non-Muslim consumers in Ghana. The Central Bank and government should organise effective consumer educational roadshows on Islamic banking.
Educating prospective consumers about the advantages of Islamic banking compared to conventional banking would highlight more objective benefits that could enhance the appeal of Islamic banking. Consumer education must focus on dispelling various misconceptions about IBF, such as the belief that IBF is exclusively for Muslims and that it is intended to promote Islam and encourage the Islamisation of non-Islamic countries.
Academic institutions such as universities and professional bodies like ICAG, ACCA, and CIB should proactively respond by reviewing their curricula to foster specialisation in Islamic finance funding.
Technical support could be obtained from Islamic universities and banks in Asia and even Africa. Finally, New national security strategies should be developed to combat terrorist groups that might exploit investment in IBF as a means to gain entry into Ghana and perpetrate violence within the country.
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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.