By Edzorna Francis Mensah.
Dean of School of Business, University of Cape Coast has said the introduction of Islamic Finance in Ghana will not eradicate the dominance of the conventional financial system.
According to him Islamic finance cannot eradicate public debt, but will help to make some strides in relation to public infrastructure and projects without debt burden.
He supported his argument by providing data on countries that are practicing Islamic banking window on their debt to GDP ratio to indicate that public debt will not be erased merely, because of Islamic finance.
“Countries such as Egypt, France, Bahrain, Kenya, Uganda and South Africa all have public debt”, in spite of the fact that they have Islamic finance within the banking system, he noted.
Professor John Gatsi made this known at the 2021 Islamic Finance International Conference (IFIC) organized by Islamic Finance Research Institute Ghana(iFRIG) in Accra.
Speaking on the theme: ‘Islamic Finance: A timely solution to the rising public debt in Ghana’, Professor John Gatsi, Dean of School of Business, University of Cape Coast explained that the Public Private Partnership Act, 2020 (Act 1039), provides a fertile investment opportunity for the deployment of Islamic financial products.
This he said would attract the needed investments in the public private partnership space to deliver public infrastructure projects.
“Islamic bonds normally called sukuk will serve as alternative funding for specific infrastructure projects”, he posited.
Professor. Gatsi indicated “the value for debt in Ghana is questionable as interests are being paid on loans procured for projects which have been abandoned and projects completed but not in use”.
He encouraged the Central Bank to speed up the process of putting up regulations in place to allow SMEs to benefit from Islamic banking.
Professor Gati admonished those advocating Islamic banking.
“Islamic banks will act like venture capitalists who only select projects when the criteria are met to ensure sustainable entrepreneurship’’.
He stressed that Islamic banks are active in supporting businesses and business ideas and passive when it comes to personal loans.
Professor Gatsi advised the organizers to ensure comprehensive engagement with all regulators related to the various aspects of Islamic finance products such as leasing, insurance, mortgage and banking.
He added that equity financing as envisaged by Islamic finance can create very high risks, when structures are not well built in arrangements.
In a message, the Deputy Head at the Banking Supervision Department on behalf of the Governor, said,
“Islamic Finance and specifically Islamic banking requires a broader support ecosystem including a legal regime to give enforceability to contracts in the event of disputes, and accounting and prudential standards, Sharia-compliant liquidity and risk management tools, and Sharia-specific governance oversight”.
In his opening remarks, Chairman of Islamic Finance Research Institute Ghana (IFRIG), Alhaji Mohammed Awal Ismail revealed that Islamic banking and finance or ethical finance is a big financial sector globally, with its assets projected to “grow by nearly 72% to exceed US$3.7 trillion by 2022, supported by a strong global appeal and consumer demand”.
Speaking about debt relative to Islamic banking, he made reference to the 4th Quarter 2021 country report by Fitch Solutions and said “Ghana’s situation, a sustained fiscal deficit — albeit a moderately narrowing one — will see the country’s debt stock continue to rise over the coming years”.
He however, believes that “Ghana will see somewhat narrower fiscal deficits, and slower growth in public borrowing in the medium-to-long term”.
