"Beyond the Interest Trap: Ghana\u2019s Road to Real Economic Reform"

" Beyond the Interest Trap: Ghana\u2019s Road to Real Economic Reform \r\n\r\nGhana finds itself at a critical economic crossroads. While some modest progress has been made under the IMF-supported Post-COVID Programme for Economic Growth (PC-PEG), the broader economic indicators continue to paint a troubling picture of stagnation, imbalance, and vulnerability.\r\n\r\nThe stark truth is that the current system, which has relied heavily on interest-based borrowing and fiscal indiscipline, is not only exhausted it is unsustainable.\r\n\r\nAs the Director General of the Islamic Finance Research Institute of Ghana (IFRIG), I believe with conviction that the time has come for Ghana to take a bold leap toward a more ethical, inclusive, and resilient economic system.\r\n\r\nNon-Interest Finance commonly referred to as Islamic Finance offers us that opportunity. It is not merely a religious or cultural alternative; it is a pragmatic, asset-backed, risk-sharing approach that aligns finance with real economic activity. And in our current situation, nothing could be more urgent.\r\n\r\nGhana's inflation has remained painfully high despite some marginal easing. From the peak of 54.1% recorded in December 2022, inflation declined to 21.2% by the end of April 2025.\r\n\r\nWhile this marks progress, we are still well above the Bank of Ghana\u2019s medium-term target of 8% plus or minus 2%. High inflation erodes household purchasing power, destroys savings, and discourages long-term investment.\r\n\r\nCompounding this, the Ghana cedi depreciated by 19.2% against the U.S. dollar in 2024, following depreciations of 30% in 2023 and over 40% in 2022.\r\n\r\nThe cumulative effect has been to significantly inflate the cost of imports and public debt service obligations, both of which are largely dollar denominated.\r\n\r\nThe interest rate environment remains equally alarming. As of the end of 2024, 91-day Treasury bills are yielding an average of 15.45%, while commercial lending rates are hovering around 30.3%. These are not merely numbers they are chokeholds on productivity.\r\n\r\nWith borrowing costs this high, Ghanaian businesses, especially SMEs and young entrepreneurs, cannot access affordable capital. Instead, capital is absorbed into government borrowing, crowding out the private sector.\r\n\r\nOur banking sector is under increasing stress. Non-performing loans (NPLs) rose to 21.8% in December 2024, driven by both the effects of the Domestic Debt Exchange Programme (DDEP) and the declining quality of bank asset portfolios.\r\n\r\nWith the financial sector under such strain, credit growth remains weak. Banks are hesitant to lend, not because they lack liquidity, but because they fear the risk. This leads to a vicious cycle: real-sector stagnation further deteriorates borrower quality, which in turn increases NPLs and deepens the crisis.\r\n\r\nThis economic model rooted in interest-bearing debt, speculative lending, and short-termism is not serving us well. We need a different path, and Non-Interest Finance offers us a credible one.\r\n\r\nIslamic finance is built on principles that align with sustainability, ethics, and economic justice. It prohibits interest, avoids excessive uncertainty , and encourages profit-sharing, partnership, and real asset-backed financing.\r\n\r\nThese principles are not merely theoretical they are practical, and they have worked in countries as diverse as Malaysia, Nigeria, Indonesia, and the United Kingdom. Ghana must now seize this opportunity.\r\n\r\nOne of the most transformative tools we can adopt is the issuance of Sukuk Islamic bonds. Unlike conventional bonds, which are debt instruments with fixed interest payments, Sukuk represent ownership in tangible assets or projects.\r\n\r\nThis ensures that funds are used for productive purposes, whether it\u2019s building roads, upgrading energy infrastructure, or financing hospitals and schools. Countries like Nigeria have raised over $2 billion in Sukuk to finance national infrastructure, with zero exposure to interest rate volatility.\r\n\r\nGhana can do the same, using sovereign Sukuk to raise ethical and sustainable financing for the Ghana Infrastructure Investment Fund (GIIF) or to support critical public services through ECG, COCOBOD, and municipal assemblies.\r\n\r\nBeyond Sukuk, Islamic finance offers partnership-based contracts such as Musharakah and Mudarabah, which can power our SME sector. Instead of loading small businesses with interest-based debt, we can create risk-sharing investment partnerships.\r\n\r\nThis reduces borrower risk, increases investor accountability, and promotes entrepreneurship. Islamic microfinance backed by real goods and services rather than abstract capital can also help integrate our vast informal sector into the formal economy, enabling the financial inclusion of women, artisans, and farmers who have long been underserved.\r\n\r\nOur fiscal system also stands to benefit enormously. The rampant fiscal deficits of the past averaging over 4.29% of GDP between 2017 and 2024 are not sustainable. We have borrowed heavily, and today, nearly 50% of government revenue goes to interest payments alone.\r\n\r\nA shift to Islamic finance would enforce fiscal discipline. Under Islamic public finance, governments are encouraged to finance deficits through asset-linked instruments or tax revenues, not by printing money or borrowing at interest.\r\n\r\nFurthermore, social tools such as Zakat (mandatory charity) and Waqf (endowment funds) can be institutionalized to support public health, education, and poverty alleviation programs complementing the government\u2019s Free SHS and National Health Insurance Scheme without adding to public debt.\r\n\r\nGhana\u2019s economy today is haunted by excess money supply, which grew by 33.7% in 2024 alone, far above our long-term average of 18%. This is one of the structural drivers of inflation.\r\n\r\nIslamic finance, by linking money to tangible assets and services, acts as a natural check against inflationary expansion. It prevents money from becoming a speculative commodity and restores its role as a medium of exchange tied to real value.\r\n\r\nIt is important to underscore that adopting Islamic finance is not a call for a wholesale replacement of our current system. Rather, it is a call for pluralism offering Ghanaians more choices, more tools, and more resilience.\r\n\r\nJust as we welcome foreign investment from diverse origins, we must also welcome diverse financial tools. In 2025, the NDC government have hinted of starting Islamic Banking in Ghana, and several commercial banks have expressed interest in opening Islamic windows.\r\n\r\nThe appetite exists. What we need now is enabling legislation, regulatory clarity, and political will.\r\n\r\nAt IFRIG, we are committed to supporting this transition. We are ready to work with the Ministry of Finance, the Bank of Ghana, the Securities and Exchange Commission, and Parliament to develop a comprehensive regulatory framework. We will train financial professionals, educate the public, and build bridges with global Islamic finance institutions to bring best practices to Ghana.\r\n\r\nWe have already begun these engagements with stakeholders across the financial ecosystem, and we are optimistic that 2025 can be the year of real change.\r\n\r\nThe macroeconomic crisis we face is not just a policy problem it is a structural and moral one. It demands a response that is not only technically sound but also ethically grounded and socially inclusive. Non-Interest Finance offers Ghana a chance to rebuild a financial system that serves people, promotes production, and supports sustainable development.\r\n\r\nLet us embrace this opportunity not as a concession to faith or ideology but as a step toward fiscal sovereignty, inclusive prosperity, and long-term economic stability. The time is now."

"Beyond the Interest Trap: Ghana\u2019s Road to Real Economic Reform"

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