Ghana’s public debt has reached 83% of GDP, with a debt service payment of US$3.01 billion as of 2022 (EIU, 2022). The debt figures raise the debt sustainability issue for Ghana and its impact on the Ghanaian cedi. Ghana has begun discussions with the IMF to secure financial support. However, risks to regain access to the international financial market, stemming from investor concerns about fiscal sustainability and high debt levels, will remain high in the coming months (EIU, 2022).
The current debt situation calls for prioritization of concessionary borrowing from now on, as commercial borrowing through the eurobond market has exposed Ghana to the shocks of the global financial market. The prioritization of concessionary borrowing will mean that the government should stretch its arms to attract a broad array of multilateral partners and equity-inclined financial institutions. Islamic finance comes in handy toward this.
Review of 2022
The Islamic finance industry in Ghana is at its formative stages with no presence of any Islamic banking services. However, over the years, advocacy and engagement with policymakers have resulted in the amendment of the Banks and Specialized Deposit-Taking Institutions Act 2016 to include non-interest banking in Ghana.
The absence of regulation has put potential Islamic finance sector investors in Ghana at a disadvantage regarding issues like taxation, liquidity instruments and others. For instance, in the case of Ijarah (lease), the law should allow customer exemption from stamp duty and capital gains tax.
The Islamic Finance Research Institute of Ghana (IFRIG) emerged in 2019 with the main aim of carrying out Islamic finance research, training, technical assistance and developing Islamic finance in Ghana. IFRIG has engaged with various stakeholders, including the central bank, the Ministry of Finance and others, on how to develop Islamic finance in Ghana.
Also, Dar al Istithmaar provides Shariah compliant advisory and structuring to clients interested in structuring investments according to Islamic finance principles. Further, MUDI, an organization whose mission is to introduce ethical investment tools to investors seeking to invest in profitable Halal businesses, has come to the market.
The listing of NewGold Issuer on the Ghana Stock Exchange as an investment holding company managing the NewGold Exchange Traded Fund, a Shariah compliant exchange-traded fund launched by ABSA Capital, creates an asset class for Islamic investors. The fund allows institutional and retail investors to invest in commodity markets and gold bullion.
Preview of 2023
In 2023, we are likely to see more proactive actions from the Bank of Ghana and the Ministry of Finance, especially as the government looks for a diversified financial landscape in Ghana. Also, the IMF discussion with the government of Ghana may be concluded in early 2023, and the economy may stabilize, which may see investors begin to see how they can leverage the hosting of the AfCFTA headquarters in Ghana.
Conclusion
There is enormous potential for Islamic finance in Ghana, looking at the Muslim population of about six million and coupled with the government’s drive to attract foreign direct investment into the country to weather the current economic storm and to make Ghana the financial headquarters of financial services in West Africa. It is expected that the government of Ghana will take a keen interest in developing a regulatory framework to assure investors of the smooth operations of Islamic finance in Ghana. Islamic finance development can help Ghana’s economic recovery, and the government should prioritize it.
Dr Abdul-Jalil Ibrahim is the senior consulting partner at Dar al Istithmar. He can be contacted at [email protected].