Ghana is the second-biggest economy in West Africa, with a GDP of US$68 billion as of 2019. The economy continued to expand in 2019 as at the first-quarter GDP growth was estimated at 6.7%. The relatively high quarterly growth was driven by a strong recovery in the services sector, which grew by 7.2% compared with 1.2% in 2018 (World Bank, 2020). The 23 banks in the country have seen private sector credit grow stronger, mainly supported by the well-capitalized banking sector. Inflation continued to be in single digits in the first six months of 2019; gradually rising from 9% in January to 10.4% in October 2020 as a result of COVID-19.
The Islamic finance industry in Ghana is at the nascent stages with no presence of any Islamic banking. Over the years, advocacy and engagement with policymakers have seen the Banks and Specialized Deposit-Taking Institutions Act 2016 amended to include non-interest banking in Ghana. Based on this, Makkah Bank, a Saudi-based financial institution, was granted a provisional Islamic banking license in May 2015. The bank could not start as a result of a failure to meet other key requirements of the license due to a breakdown in negotiations between the partners according to a reliable source.
In terms of regulation, Ghana has never adopted any particular regulation to accommodate Shariah compliant banks or insurance. It is essential to mention that regulatory frameworks have been tabled twice before two different governments under the presidencies of John Kufuor and John Atta Mills.
Review of 2020
The absence of regulation has put potential Islamic finance sector investors in Ghana at a disadvantage when it comes to taxation. There is a potential double taxation in the case of Murabahah (sale plus markup), where the same asset is taxed at both the first and second sales. To address this, the tax authorities should consider, in the case of Murabahah, the first purchase price in the arrangement to be subjected to all relevant taxes, whereas the second sale price is exempted from value-added tax, stamp duty and capital gains tax. In the case of Ijarah (lease), the law should allow that when a customer acquires a house at the end of a lease period for a nominal value, the agreement executed between the financial institution and the customer is exempt from stamp duty and capital gains tax.
The Islamic Finance Research Institute in Ghana has emerged since 2019 with the main aim of carrying out Islamic finance research, training, technical assistance and the development of Islamic finance in Ghana. Salam Capital provides Islamic microfinance to its customers. Also, 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. Despite the entrepreneurial efforts in these initiatives, the issue of Shariah compliance remains a challenge as independent Islamic finance experts’ certification of these products remains unknown.
A significant development in the Islamic finance industry in Ghana is the listing of NewGold Issuer on the Ghana Stock Exchange. This is an investment holding company managing the NewGold Exchange Traded Fund, which is a Shariah compliant exchange-traded fund launched by ABSA Capital. The fund allows institutional and retail investors the opportunity to invest in commodity markets and gold bullion.
Preview of 2021
As West Africa’s top foreign direct investment (FDI) recipient, Ghana received more than a third of the region’s inflows in 2018, reflecting the country’s emerging skill base. With the African Continental Free Trade Agreement (AfCFTA) scheduled to start in January 2021, and with Ghana hosting the headquarters, Ghana’s industry will absorb increasing raw materials from the region, scale up manufacturing and trade in processed and light manufactured products (African Development Bank, 2020).
In 2021, we are likely to see more proactive actions from the Bank of Ghana and the Ministry of Finance especially when the current government is reelected as they try to consolidate the financial service ecosystem in Ghana with recognition for Islamic finance’s role in diversifying the financial service landscape and enhancing financial inclusion. Also, the hosting of the headquarters of the AfCFTA will see Ghana attract more FDI, including from Islamic banks, from 2021.
The implementation of the COVID-19 Alleviation And Revitalisation of Enterprises Support program by the government of Ghana regarding COVID-19 recovery “will require around GHS100 billion (US$17.08 billion) of spending and investment inflows to fully fund the initiatives”. Given the severe fiscal strains, the government expects at least GHS70 billion (US$11.96 billion) to come from the private sector (Supplementary Budget of Government of Ghana, 2020)
The entry of ABSA Bank into Ghana with the acquisition of Barclays Bank Ghana will likely see the bank take an interest in establishing an Islamic banking window as it operates an Islamic banking window in South Africa.
Dar al Istithmaar is also preparing to launch its Islamic fund product called the Agric Fund, that seeks to issue a certificate to potential investors who may want to invest in commercial farming.
In the future, the evolution of the Islamic finance industry will see more attention on Shariah advisory services. This will be driven by the increasing number of Islamic finance experts emerging in Ghana as more Ghanaians travel to Qatar, Malaysia, Turkey and Saudi Arabia to study Islamic finance and then returning to Ghana.
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 FDI into the country to drive Ghana beyond an aid policy and also 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 smooth operations of Islamic finance in Ghana.
Abdul-Jalil Ibrahim is the senior consulting partner of Dar al Istithmaar. He can be contacted at [email protected]