By Abdul Baasit Dikeni Hashiru
The Muslim community in Ghana is growing rapidly, making it essential for the banking sector to introduce Islamic banking.
Such an initiative would align with the promise made by President John Dramani Mahama during his campaign, demonstrating a step in the right direction.
As a young Muslim professional in the banking and micro-credit sector, I strongly advocate for banks in Ghana to consider adding Islamic banking to their range of financial products.
The introduction of Islamic banking has the potential to propel Ghana’s economy and enhance financial inclusion by providing alternative banking services. This model of non-interest financial services will offer diverse banking products and attract investors, giving them more options to engage with Ghana’s economy.
It is important for other religious groups to understand that this is not an attempt to Islamise the banking sector but rather an effort to diversify financial services, ultimately benefitting the entire nation.
This article explores various perspectives on the institutionalisation of Islamic banking in Ghana. Given its globally recognised benefits, Islamic banking will also help strengthen relations between Muslims and non-Muslims who may utilise these financial services.
Several countries have successfully integrated Islamic banking into their financial systems, attracting investors – especially from the Gulf region – to support economic growth.
For example, Nigeria, Niger and Mali have embraced Islamic banking, benefitting significantly from increased investment.
In Nigeria, banking sector reforms in 2009 led to the adoption of Islamic banking and finance as an additional banking mechanism. Although its implementation sparked debates, primarily because it is based on Islamic principles, it was successfully introduced and has since contributed to the growth of Nigeria’s banking sector.
However, challenges remain; particularly concerning interest-based transactions and the regulatory framework for Islamic banking. Addressing these issues requires greater public awareness and the creation of an enabling environment including legal, accounting and taxation systems that support Islamic banking operations.
Islamic banking generates income primarily from service fees, including deposit and transaction fees, low funds charges, annual and monthly account service charges and cheque-processing fees. These revenue streams help ensure liquidity while mitigating risks of default.
The current Ghana reference rate of about 30 to 35 percent makes it unattractive for businesses, especially the startup ventures.
Islam prohibits excessive interest- based transactions – a principle stated in numerous Hadith.
Islamic banking is based on the principle of sharing profit and loss with the customer, showing how to mitigate the exorbitant interest charged by lenders and investors.
Islamic banking makes profit through equity participation. This requires a customer to give the bank a share in their profit rather than the usual interest. In the same way, the bank also shares in the customer’s losses.
The idea of Islamic banking is to share the risk of lending with customers. This initiative takes the burden of risk from the customer – thus, customers can venture into startups and other risky ventures. Our traditional banks are not willing to give credit for customers’ startups.
Given these principles and the potential benefits, there is a strong case for introducing Islamic banking in Ghana. By diversifying financial services, the country can attract more investors and promote economic stability while respecting the religious beliefs of its growing Muslim population.
