Walk into any factory floor or trading stall today, and you will hear the same lament: “I borrowed to grow, but the interest is eating the profits faster than I can earn them.”
That theme now echoes in the data. The Bank of Ghana’s latest Domestic Money Banks Report shows that lenders had to wipe off GH¢654.2 million from their books between January and April 2025, money that borrowers simply could not repay. Even after last 7year’s financial clean-up, the stock of non-performing loans has climbed to GH¢21.7 billion and still accounts for nearly a quarter of total lending.
This growing pile of bad loans is not just an inconvenience, it is a recurring symptom of a deeper structural issue in Ghana’s financial ecosystem.
High write-offs are only the most visible scar. Because banks must price for that risk, the average 91-day treasury bill still yields around 14.93%, creating a benchmark that drags commercial lending rates into the mid-20s.
Businesses that borrow at those levels are, in effect, betting they can earn returns higher than many venture-capital portfolios, an almost impossible expectation in a business environment still battling inflation, which remains above 18.4%.
For many firms, that bet fails. Arrears build up, collateral is seized, employees are laid off, and once again banks are forced to write off loans, depleting their capital and confidence in the credit market.
Ghana’s sovereign finances are caught in a similar spiral. Parliament recently approved a US$2.8 billion restructuring agreement, pushing debt repayments as far as 2043 simply because the interest burden had become unsustainable.
Interest payments alone now consume more national revenue than education and health combined. This is not just a matter of accounting, it is a direct tax on development.
Every cedi spent servicing debt is a cedi lost to schools, roads, hospitals, or industrial transformation. Add to this the depreciation of the cedi, which increases the cost of imports, fuels inflation, and forces the Bank of Ghana to maintain high interest rates to stabilise the currency. The result is a high-interest, low-growth trap that locks the entire economy into stagnation.
The central issue lies in the design of our financial model. Conventional banking is structured around fixed interest. Once a loan is issued, the borrower is bound to repay not just the principal but the interest, regardless of whether the business succeeds or fails.
If revenues drop or costs rise, the bank continues to charge interest on the outstanding balance. The pressure builds, arrears grow, and borrowers eventually collapse under the weight. The system rewards lending volume, not long-term sustainability, and banks are incentivised to roll out short-term credit at high rates, hoping to recover quickly even if the business model is unsound.
There is an alternative, and it is not theoretical. Islamic banking operates on a fundamentally different principle: profit and risk are shared. Under this system, banks finance projects through partnership models where both parties invest capital and share the resulting profits or losses.
In a mushārakah (equity partnership), the bank becomes a co-owner of the business and earns returns based on actual performance. In a murābaḥah (cost-plus financing), goods are purchased and resold with a known profit margin, while ijarah (leasing) agreements allow clients to use assets while paying a rental fee. These are not mere religious arrangements, they are economically sound models tested across the globe.
Evidence from Asia, the Middle East, Europe and parts of Africa shows that Islamic banks tend to have lower non-performing loan ratios and greater resilience during periods of economic stress. This is because the financing is asset-backed, repayment terms are more flexible, and the bank’s income is directly tied to the success of the client’s venture.
The system discourages speculative lending and promotes long-term investment discipline. Risk is not pushed entirely onto the borrower, which means fewer defaults and more sustainable business outcomes.
In Ghana, non-interest banking is permitted, but its potential remains largely untapped. public understanding of Islamic finance remains limited. What Ghana needs is a deliberate shift. A dedicated Islamic Banking regulatory framework would provide legal clarity and investor confidence.
A central Financial Regulation Advisory Council of Experts (FRACE) in Islamic finance under the Bank of Ghana would ensure that products meet ethical and financial standards. Tax policies must be adjusted to treat Islamic finance on equal footing with conventional instruments. Government could pioneer a sovereign sukuk, an Islamic bond, backed by toll revenues, energy projects, or agricultural infrastructure. This would diversify the national borrowing base, reduce reliance on interest-laden loans, and create an example for the private sector to follow.
Public education is also key. Islamic finance should not be seen as a niche offering for a specific religious group, but as a practical, ethical, and economically sound solution to the challenges facing Ghana’s financial system. Entrepreneurs, investors, and policymakers must understand that the model can deliver not just compliance with faith-based principles, but real financial discipline, inclusivity, and resilience.
The Bank of Ghana’s data offers both a warning and a call to action. Writing off hundreds of millions of cedis every few months has become normalised. This cycle will not end until the country rebalances the risk in its financial system and embraces a model that ties credit to real economic activity.
Islamic finance offers a time-tested, globally accepted, and practically viable way to do just that. In a country battling high debt, persistent inflation, exchange rate volatility, and constrained fiscal space, Ghana must look beyond conventional tools. Islamic banking is not a replacement but a complement, one that offers hope for a more stable, inclusive, and sustainable financial future.
By Shaibu Ali (MBA,MSc,CIFE,CIBFP,CSCGP,CIFP,Ph.D), Director General, Islamic Finance Research Institute, Ghana. President, Islamic Finance Professional Institute