Islamic banking has been recommended as the most appropriate financial system that can support and fast-track the country’s socio-economic development agenda.
The conversation about Islamic Banking has resurfaced following the campaign promise of the opposition NDC to introduce this form of banking in the country.
According to the Dean of the University of Cape Coast Business School, Prof. John Gatsi, this form of banking perfectly fits Ghana’s socio-economic development where funding is needed to finance numerous investment and infrastructural projects.
Justifying why Islamic Banking is the most ideal for the current development phase of Ghana compared to the conventional banking system, Prof. Gatsi touted the interest-free component of commercial activities carried out by Islamic faith-based banking.
He further explains that since the sustainability of Islamic Banking depends on profit-sharing or equity stake, projects are chosen meticulously based on feasibility and profitability. He adds that the banking system gets involved in the implementation of selected projects to ensure success.
With this, he intimated that Islamic banking is structured to deal with the menace of abandoned projects which are very prevalent in Ghana.
“The choice of the projects to finance will be done with a critical effort so that when those projects are selected, the implementation will be robust and success will surely be achieved. We will see more financing of infrastructure and entrepreneurial projects. You will see less consumer financing because that is how it is structured to promote development,” Prof. Gatsi tells The High Street Journal in an interview.
He further noted that Islamic Banking has an inbuilt mechanism to ensure that all funds provided are strictly used for the purpose upon which they were released. This is done through an undertaking signed between the bank and the fund seeker.
This structure, Prof. Gatsi will help do away with the practice where all or parts of funds raised on the commercial or Eurobonds market are diverted to finance other things.
He explained that “when we go to the Eurobond Market to raise bonds. If you raise let’s say 3 billion, the 3 billion is not available to undertake projects. Part of the 3 billion will be used to finance consumption. Perhaps, 70% will be available to do the real project but Islamic banking does not permit that.
“When you raise a bond, there is an undertaking to those who provided the money for the bond. You write an undertaken to ensure that what you put in the prospectus to use the money for is used exactly for that.”“There is no opportunity to raise the money and divert part of the money to any other project. That is the principle. So it is going to help the realization of project completion in the country.”
