Ghana and Islamic Finance: A Cursory Glance

Even though Ghana first broke her long protracted official silence over Islamic finance in 2011, saying she was ready for Islamic banking, the Bank of Ghana as of today, is yet to issue its first Islamic banking license.

The foregoing notwithstanding ,a conventional Insurance company ,Metropolitan   Insurance Company, however  first opened a Takaful(Islamic insurance) window or department under its operations in 1998.The company for the first time in the country, launched a product known as “MEIT LABAIKA PLAN” that initially targeted  pilgrims to Mecca. Over time, it expanded its product lines to cover life, education among others.

That Islamic finance can make a vital input into Ghana’s development agenda is not in question and thus, the need for the country to double her efforts is long overdue.

Membership to the IDB

Ghana is the odd one out in the entire West African sub-region so far as the membership of the Islamic Development Bank (IDB) is concerned .The country is continually losing out of the opportunity to benefit from the bank’s interest-free loans it doles out to member countries annually .The country is yet to subscribe to the shares of the IDB as she had done for the African Development Bank, IMF, etc.

Ghana’s immediate neighbors namely, Burkina Faso, Ivory Coast, Benin, Nigeria and Togo are all members’ countries of the Islamic Development Bank (IDB) from which they derive uncountable benefits through the Apex Islamic financial institution as already stated.

Granted that Ghana’s former colonial master, the UK, now has observer status in the Organisation of Islamic Conference (OIC) that owns the IDB, what is delaying Ghana from making the first move of joining the OIC and then subsequently subscribing to the shares of the IDB as a member country? The late Vice President Aliu Mahama made a move during the Kufuor-led NPP government but wasn’t allowed to carry it through.

As for the erroneous perception held by some here in Ghana that in joining the IDB, Ghana would be mortgaged to the Sharia, the least said about it the better.

Even though the Banks and Specialized Deposit-Taking Institutions Bill, 2015 that was passed  into Law was expected to make a provision for  Islamic banking in Ghana, the  Bill  is silent and does not  make any specific mention Islamic finance.

Islamic finance is not about religion per say but only tends to present an alternative  and encompassing economic and financial system from which all humanity stands to benefit irrespective of gender, religious, political, ethnic  or religious persuasions.

Thus, Islamic finance is not only for Muslims and therefore, non- Muslims who acquire the technical and managerial skills can own and operate Islamic banks so long as they offer sharia compliant products and services that best serves the mutual interest of the bank, its customers and the society in which it operates.

Drawing from UK’s Experience of Reform

The UK had to first review its banking code, established the legal and regulatory framework for Islamic finance. She then went further to establish the Financial Services Board mandated to facilitate the establishment of Islamic financial institutions in the UK leading to the birth of maiden Islamic Bank of Britain and several others today.

Could Ghana draw useful lessons from this? Since 2004 UK has raked in billions of GBP in investments from the Arab Gulf in particular. The country’s most ambitious multi-billion dollar real estate project, the Chelsea Barracks was funded through Arab gulf Islamic investors

In fairness to the immediate past Governor of the Bank of Ghana, Dr. Abdul Nashiru Issahaku, during his rather short tenure, he was very passionate about training of top technocrats in Bank of Ghana and other stakeholder institutions in the acquisition of knowledge and expertise in Islamic finance This is vital in pursuing forms and paving the way for the establishment of the legal and regulatory framework needed to attract leading Islamic financial institutions to Ghana.

The G20 group of nations’ decision to examine the use of Sukuk to finance infrastructure investment experts contend could, in time, bolster the size of the Sukuk market, including Africa.

Ivory Coast had been using Eurobond in the past but trying sukuk in 2015,it appears the world’s leading cocoa producer has  found something special in it since the country  issued sukuk twice in one stretch in the same year. When will Ghana also try a sukuk? The fact that the IMF and IFC, members of the World Bank Group, UK, Hong Kong, Germany and others are on record to have  issued  sukuks rather than Eurobonds, should prick our conscience as a nation.

Over to you Hon. Minister of Finance & Economic Planning, current Governor of Bank of Ghana and  His Excellency, the Vice President of the Republic of Ghana.

What is Islamic Finance?

Islamic finance entails banking, insurance(Takaful), Zakat (Tax  for the poor),halal industry, is a nonnegotiable  ethics  driven  alternative financial system  that encourages  generation of  wealth through partaking in risk to  earn from returns on investment .It is otherwise termed by others as share economics or   profit and loss sharing financial system

Islamic finance unlike its conventional counterpart   abhors and frowns upon the making of wealth through debt or loan financing whereby earnings are solely dependent on interest or predetermined financial gain made by a lender to borrower irrespective of the outcome of the purpose for which the money acquired.

Islamic finance is a sub-set of the Islamic economics which is derived from the Sharia or the sum total of Islamic Jurisprudence rooted in the teachings of the Holy Qur’an and Sunnah (sayings and acts of Prophet Muhammad (S.A.W.)

Islamic economic Philosophy

According to Islamic economy philosophy Allah (the Unimaginable One God) the Originator of the Universe and all what is contained therein, is the absolute owner of all resources derived from the earth’s marine, terrestrial and aquatic eco-systems, etc.

In this light, the human race who are Allah’s Vice generents on the planet earth, are only trustees of the resources .It behooves the current generation to make most equitable and responsible use of the resources for their current sustenance and that of generations yet unborn.

Human beings would   therefore one day be called upon by their Maker to account to Him for how they used the resources, acquired their wealth and how they fulfilled their responsibilities to their core dependents, other fellow humans in the society at large.

The Sharia

The Sharia or the sum total of Islamic jurisprudence defines the Islamic societal code of ethics, legal and regulatory mechanisms and framework that teleguides man’s spiritual and physical endeavors in this mundane life. The aspects of the shariah that engenders  and seeks to ensure fair play in economic and commercial activities undertaken between man and man is known as Fiqihi al m’uamalat (Commercial jurisprudence)

In this light, the sharia forbids acquiring wealth through hoarding and profiteering, speculation, gambling and fraud .Investment in the production of, and trade in alcoholic beverages, narcotic drugs, etc. Thus products and services offered by Islamic banks and other non-banking financial institutions must comply with the stipulated norms enshrined in the fiqhi al mu’amalat or commercial jurisprudence before their legitimacy could be authenticated.  This is why Islamic financial products are termed as Sharia compliant

To this end, every Islamic finance institution requires as per laid down industry best practice, the engagement of the services of a Sharia Advisor who verts the sharia compliance of developed products and services before they are even put out for public consumption. He is also to ensure that the institution does not take its share in profit in excess or less what is fairly due it.

 

Money in Islamic Economics

Money in Islamic economic terms is simply a medium of exchange and never treated as a commodity .In this vein, money has no intrinsic value until it is put to productive use and as such, there shouldn’t be any charge for its use without having participated in risk taking .The charge for the use of money is termed as interest or riba in Arabic. Interest in form of normal, compound and penalty simply increases cost of transaction as an add on to inflation whiles the elimination of interest in Islamic finance reduces cost in transaction and scales down inflation.

In the same veil, money shouldn’t be traded for money .Thus there shouldn’t be money on two sides of a transaction equation but rather goods and services on one side and money on the other. Loaning money to take back money through interest without participating in risk taking is tantamount to taking the money of others illegally.

Circulation of Money and Distribution of Wealth

The Islamic financial system seeks to ensure social and economic justice through equitable circulation of money and distribution of wealth .Hence Zakat(2.5 percent tax on idle wealth for the poor)forms one of the five pillars of the religion of Islam aimed at addressing the rich-poor gap in the society.

The Interest based system doesn’t ensure free circulation of money and distribution of wealth and hence the ever yawning global poverty gap between the rich industrialized developed on the one hand and the poor developing and never to be developed countries on the other. This is to the extent that ,over 70 percent of global wealth today is said to be in the hands of the minority of world population who constitute the so-called multinational or transnational corporations .

By: Mohammed Abu