The fears that Islamic Banking will possibly be a threat and competition to the traditional and conventional banking in the country when introduced have been allayed.
To deepen the financial sector and accelerate socio-economic development, it is the vision of the opposition National Democratic Congress (NDC) to introduce Islamic Banking in Ghana if it emerges victorious in the 2024 General Elections.
The idea has raised concerns about the possibility of a threat to the conventional banking system given the “no interest” nature of Islamic Banking.
But the Dean of the University of Cape Coast Business School, Prof. John Gatsi has allayed such fears indicating that the introduction of such a new form of banking will rather enhance the financial sector and boost economic activity in the country.
Prof. John Gatsi explains to The High Street Journal how the principle of “No Interest” in Islamic Banking works and how sustainability is ensured.
“Islamic banking is structured on a profit and loss agreement between those who come for facilities and then the bank so that monitoring can be intensified to ensure that monies are spent on the project upon which they come for the money. The success of the project will determine what the bank will get and what the one who came for the money will also get,” the dean indicated.
He added that, “it’s just like a venture capital approach where what you get depends on the arrangement between the financier and the one who holds the idea. Profit, so to speak is not allowed in the Islamic financial system it’s only based on profit-sharing agreements.”
The NDC’s campaign promise if implemented, Prof. Gatsi is convinced will not stifle or threaten the existence of conventional banking in the country. To him, it will rather create a hybrid financial sector where there will be options for customers to choose which type of banking aligns with the intended project and can provide the best-fit funding product.
“It has no competitive issue with the conventional banking. What we sought to develop is a hybrid financial system that allows for the conventional financial system to run side by side with Islamic financial system to also run so that we provide a choice for participants in the financial market. Those who are interested in Islamic financial products will go and those who are interested in the traditional or conventional financial system will go. And you will also see a chunk of people also participating in both financial products,” he tells The High Street Journal in an interview.
He emphasized that, “there is nothing like one will be edging out the other from the market. It’s a unique product. The product that attracts you, you go in for that.”
Islamic banking is centered on the principles and regulations of the Islamic faith as they deal with commercial transactions. These principles and regulations are based on the Quran, the holy and central religious text of Islam. The transactions of Islamic banking must always conform to the Shariah Law and the specific framework governing commercial transactions in Islamic banking is known as fiqh al-muamalat.
Some key differences between conventional and Islamic banking is the prohibition of both usury and speculation and the charging of interest on loans. In addition, Islamic banking is prohibited from financing projects and services forbidden by Islam such as alcohol, pork, and gambling among others.
