Islamic Banking Proposed as a Solution to Enhancing Agricultural Financing in Ghana
Professor John Gatsi, Dean of the University of Cape Coast Business School, delivered a stark assessment of the challenges facing Ghana’s agriculture sector during his keynote speech at the 2024 Islamic Finance International Conference themed,“Should Economies Take Advantage of Non-Interest Banking?”
He noted that the sector has been adversely affected by a significant lack of foreign direct investment (FDI) and financing from commercial banks attributed to its reputation as a high-risk investment area.
Despite being a critical sector, agriculture has also been linked to the highest contribution to non-performing loans within the financial system, further deterring traditional lenders. “The conventional banking system is shying away from agricultural finance due to perceived risks, but Islamic banking looks at agriculture as a comfortable area to partner and finance for upscale,” said Professor Gatsi.
In contrast, he pointed out that Islamic banking offers a more favorable perspective on agricultural investments, viewing them as viable opportunities for collaboration and financing with commercial stakeholders.
Speaking further at the Conference, Professor Gatsi called for the establishment of an Islamic banking window within conventional banks in the country, enabling them to offer Islamic financial products and services. He stressed that embracing Islamic banking could enhance Ghana’s financial inclusion initiatives, attract funding from the Islamic Development Bank (IsDB), and diversify the country’s infrastructure financing.
During a panel discussion focused on whether non-interest banking could mitigate debt accumulation in economies, Professor Gatsi further critiqued the conventional interest-based financing model. He cited the complexities associated with Eurobond financing, where borrowers often face repayment pressures before project completion.
“Let’s take the Eurobond as an example, borrowing at the end of December requires immediate coupon payments, potentially before the feasibility studies for the project are even finalized,” he explained, adding that this results in a cycle where countries procure debt to finance development but find themselves grappling with repayment obligations even before the benefits of the investments are realized.
Professor Gatsi also argued that non-interest banking could alleviate these burdens by allowing project revenues to be utilized for debt servicing rather than immediate principal and interest repayments.
“In this framework, the financial burden is lessened, enabling nations to redirect resources to other critical activities while ensuring that investors are compensated through profit-sharing arrangements,” he concluded.
Meanwhile, Governor of the Central Bank, Dr Ernest Addison, has remarked that Ghana is not ready to commence Islamic Banking activities.
According to him, the rollout of Islamic Banking activities requires the provision of shariah-compliant regulatory and legal frameworks which the country does not have in place at the moment.
The Governor answering a question posed to him on Islamic Banking by norvanreports at the 117th MPC press briefing said, “Islamic Banking is an issue that has been raised on a few occasions, but we need to work on the appropriate regulatory framework and legal regime which involves specific shariah governance arrangements shariah liquidity management arrangements as well as risks management tools associated to Islamic Banking.
“So it’s not a simple matter, it’s an issue we have looked at and I don’t think we want to roll anything out as of now, but definitely if technical people come up with some final reports on that, I am sure we will act on it. But I cannot put a timeframe on that,” he quipped.
