The issue of Islamic banking in Ghana has lingered on for several years with the call on the statutory regulator, the Bank of Ghana, (BoG) to begin giving approval to financial institutions who want to veer into that area.
Islamic banking follows Shari’a law, while conventional banking does not. Islamic banks do not pay or receive interest, while conventional banks charge interest on loans as their profit. It operates on a profit/loss sharing principle, where both the borrower and the supplier of the funds share the risks.
Islamic banking products are usually asset backed and involve trading of assets, renting of assets, and participation on profit & loss basis.
Islamic banks collect deposits on qarz in current account and offer financing under three shariah modes: Rental, Partnership, and Trade.
Islamic banks offer returns/profits only on Mudarabah based accounts. The cost of the Islamic financial product is linked to an asset or commodity, while conventional banking pricing is based on current interest rates.
Islamic banks deem currency/money as a ‘mode of exchange’, thus Islamic banks do not sell/ rent money for profit. However, they may rent a fixed asset or sell a Shariah-Compliant asset to customer for a profit.
Professor John Gatsi has been a strong advocate for Islamic banking in the country.
Prof. Gatsi, speaking at the 24th Islamic Finance International Conference in Accra, urged Ghana to become a member of the Islamic Development Bank to attract direct investment from Islamic financial institutions through trade finance and technical cooperation.
Prof. Gatsi, Dean of the School of Business at UCC, noted that while section 18(r) of Act 930, the Banks and Specialized 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.
“The law is as if it allows Islamic banking, but the governance structures are not put in place, the regulations are not put in place, therefore it becomes very difficult for anybody to apply for Islamic banking licences,” he said.
We urge the BoG to put in the necessary regulatory framework in place for the establishment of Islamic banks in the country.
