In the name of Allah, the compassionate the merciful
His Excellency the President of Ghana has recently issued a critical mandate to the newly appointed Finance Minister, Cassiel Ato Forson: “reduce inflation, lower the cost of living, stabilize the cedi, manage deficits, and bring the national debt to sustainable levels”. These are ambitious goals that require innovative financial strategies owing to the nature of our current economy. One such strategy that holds tremendous promise is the implementation of Islamic finance in Ghana. By fast-tracking the adoption of this alternative financial system, the government can unlock new tools to address these pressing economic challenges.
What is Islamic Finance?
Islamic finance is a financial system guided by Shariah law. It emphasizes ethical investments, risk-sharing, and the prohibition of interest (riba). Instead of conventional interest-based lending, Islamic finance promotes profit-and-loss sharing arrangements, asset-backed financing, and investments in socially responsible projects. Globally, this system has gained traction for its stability and inclusivity, attracting both Muslim and non-Muslim stakeholders.
How Islamic Finance Can Help Ghana Achieve Its Goals
- Reducing Inflation and Stabilizing the Currency
Islamic finance prioritizes real economic activity over speculative transactions. By focusing on tangible assets and productive investments, it discourages excessive liquidity that fuels inflation. Additionally, the profit-and-loss sharing model ensures that financing is tied to real economic growth, which can help stabilize the cedi. Countries such as Malaysia and Indonesia have successfully leveraged Islamic finance to strengthen their currencies and build more resilient economies.
- Lowering the Cost of Living
Islamic finance promotes affordable financing solutions through its ethical framework. For instance, instead of high-interest loans, individuals and businesses can access profit-sharing arrangements or rent-to-own schemes. These alternatives reduce the financial burden on households and small businesses, ultimately lowering the cost of living. Ghanaian families struggling with housing, education, and healthcare expenses would greatly benefit from these accessible and fair financial products.
- Reducing National Debt and Managing Deficits
One of the unique features of Islamic finance is the issuance of Sukuk or Islamic bonds. Unlike conventional bonds, Sukuk is asset-backed and tied to specific infrastructure or development projects. This ensures that borrowed funds are directed toward productive purposes, reducing the likelihood of unsustainable debt accumulation. By issuing Sukuk, Ghana can attract ethical investors from the global Islamic finance market, which is valued at over $3 trillion, to fund critical infrastructure while keeping debt levels manageable.
- Encouraging Financial Inclusion
With a significant portion of Ghana’s population remaining unbanked, Islamic finance offers an opportunity to bring more people into the formal financial system. Its ethical and interest-free principles resonate with many who are excluded by conventional banking practices. Financial inclusion not only empowers individuals but also broadens the tax base, creating a more robust economy.
- Reining in the Deficits
Islamic finance’s emphasis on balanced risk-sharing and ethical investments reduces the likelihood of reckless fiscal practices. The government can leverage Islamic financial institutions to partner on public-private projects, ensuring transparency and accountability. By aligning national expenditures with sustainable revenue streams, the deficit can be more effectively managed.
The Way Forward
To capitalize on the benefits of Islamic finance, the government must act swiftly. Key steps include:
Regulatory Framework: Establish a comprehensive legal and regulatory framework to facilitate Islamic financial institutions’ operations.
Public Awareness: Educate Ghanaians about the principles and benefits of Islamic finance to build trust and acceptance.
Strategic Partnerships: Collaborate with countries that have successfully implemented Islamic finance, such as Malaysia and the UAE, to adopt best practices.
Incentivizing Adoption: Offer incentives to conventional financial institutions to integrate Islamic finance products into their portfolios.
Training and Capacity Building: Develop expertise in Islamic finance through specialized training programs for professionals and policymakers.
Conclusion
Islamic finance presents Ghana with a unique opportunity to address its economic challenges in a sustainable and ethical manner. By fast-tracking its implementation, the government can not only fulfill the President’s mandate but also lay the foundation for a more stable, inclusive, and resilient economy. It is time for Ghana to embrace this transformative financial system and lead the way as a pioneer of Islamic finance in West Africa. And Allah knows best!
YAHAYA ILIASU MUSTAPHA
The writer is the Ghana representative of the Alhuda Centre of Islamic Banking and Economics, Dubai, and Islamic Banking and Finance patron and advocate in Ghana. He is also the founder of ‘Islamic Finance TV Gh’ on Facebook, TikTok, and YouTube. He holds a BSc. in Islamic banking, economics, and finance from the International Open University a BA. in Political Science from the University of Ghana, and a Diploma in Education from the University of Winneba. We would want to collaborate and partner with any persons or organizations who are willing to explore this field in Ghana and beyond.
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