In the name of God, the compassionate the merciful
Today, we are all certain that Ghana is among the highly indebted countries of the world. Ghana has now implemented extensive and severe austerity measures due to its bail-out request from the International Monetary Fund (IMF) as part of the (IMF) conditionalities.
Ghana’s gross sovereign debt at the end of 2023 is hovering around GH₵569.35 billion (US$51.67 billion), representing 71.1 percent of GDP. As an Islamic finance advocate in this country and other Islamic finance proponents and patrons, we will kindly urge policymakers to consider Islamic finance as a considerable part of the solution not only to Ghana’s public debt but also a weapon to fight unemployment and enhance skills and livelihoods in the country.
Using Islamic finance to address a state’s debt situation involves adhering to Sharia principles, which prohibit the payment or receipt of interest (usury) and require transactions to be based on underlying tangible assets or services. Applying Islamic Finance principles produces immediate good results. Here are myriads of ways policymakers can utilize Islamic finance to manage the sovereign debt trouble of the country:
Sukuk Issuance (Islamic Bonds): Sukuk Structure: the number one tool to be used to manage our public debt is sukuk. Instead of issuing conventional bonds, a state can issue sukuk, which represents ownership of tangible assets or services. Sukuk holders receive a share of the returns generated by these assets.
Asset-Backed Financing: Secondly, the state can identify specific projects or assets such as infrastructure projects, and issue sukuk to fund them. Investors receive returns based on the project’s performance. Absolutely no interest payment is involved.
Islamic Syndicated Loans: thirdly, the state can enter into Islamic syndicated interest-free loans where lenders participate as partners rather than creditors. The repayment structure can be based on profit-sharing, making it compliant with Islamic finance principles.
Islamic Microfinance and Development Funds: further, establishing funds that support small and medium-sized enterprises (SMEs) or development projects by Islamic finance principles. This can spur economic growth and generate revenues for the state.
Islamic Trade Financing: in addition, utilizing Islamic trade financing mechanisms, such as Murabaha, to facilitate international trade. Murabaha involves a cost-plus-profit arrangement and can be used for short-term financing needs.
Public-Private Partnerships (PPP): moreover, collaborating with private investors to implement projects through PPP structures that align with Islamic finance principles. Profits and risks are shared based on agreed-upon terms.
Waiving or Restructuring Debt: furthermore, in situations where a state is unable to meet its debt obligations due to economic challenges, it may negotiate with creditors to restructure the debt in a manner compliant with Islamic finance principles. This could involve extending the repayment period or adjusting the terms to align with Sharia principles.
Islamic Development Banks: also, seeking financial assistance from Islamic development banks that operate based on Sharia principles. These institutions may provide funds for development projects or offer financial support to address economic challenges. For example, an agreement with the Islamic Development Bank in Jeddah may go a long way to ameliorate the debt situation in the country.
Zakat and Charity-Based Initiatives: last but not least, is exploring avenues for utilizing zakat (obligatory almsgiving) and charity to fund specific projects or support individuals in need. This aligns with Islamic finance principles of social justice and wealth redistribution. In this case, direct Government involvement in the collection and distribution of zakat may play a very pivotal role in realizing this ambition.
The state needs to work with Islamic finance experts of integrity, Islamic scholars of integrity, and Islamic institutions of integrity to ensure compliance with Sharia principles. Additionally, transparency and accountability in financial transactions are crucial to gaining the trust of investors and stakeholders in the Islamic finance community. And Allah knows best! “Praise be to God in whose favour good deeds are accomplished”- (ibn Maja 3803).
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana and beyond.
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