The Muslim community in Ghana is growing rapidly, making it essential for the banking sector to introduce Islamic banking. This initiative aligns 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 Islamize the banking sector but rather an effort to diversify financial services, ultimately benefiting the entire nation.
This article explores various perspectives on the institutionalization of Islamic banking in Ghana. Despite its globally recognized benefits, Islamic banking will also help strengthen relations between Muslims and non-Muslims who may utilize 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, benefiting 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, insufficient funds charges, annual and monthly account service charges, and check-processing fees. These revenue streams help ensure liquidity while mitigating the risks of default.
The current Ghana reference rate of about 30 to 35 percent makes it unattractive for businesses, especially the start up ventures.
Islam prohibits the excessive interest- based transactions. This principle is stated in numerous Hadith.
Islamic banking is based on the principle of sharing profit and loss with the customer and how to mitigate the exorbitant interest 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 share in the customer’s losses. The idea of Islamic banking is to share the risk of lending with the customer. This initiative takes the burden of risk from the customer thus customers can venture into start ups and other risky ventures. Our traditional banks are not willing to give credit to customers for start ups.
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.
Source: Abdul Baasit Dikeni Hashiru
(Founder and Chairman of Yatik Credit)
