Prof Gatsi Urges BoG to Demonstrate its Readiness to Embrace Islamic Banking

Prof John Gatsi speaking at the forum

Accra, Ghana, September 29, 2019//-A renowned Ghanaian economist, Professor John Gatsi has urged the Bank of Ghana (BoG) to demonstrate its readiness to create regulatory window, supervisory structure and corporate governance adjustments, and create the roadmap flexible enough to embrace Islamic banking in the country.

According to him, the central bank should be proactive and define roadmap for Islamic banking as there are benefits in supporting the entrepreneurial space and government projects.

Prof Gatsi who is also the Dean of the School of Business of the University of Cape Coast (UCC) made the call at an Islamic Banking and Finance forum organized by the Dubai Chamber International Office in Accra over weekend.

To this end, he called for a proper education and inclusive discussion about Islamic banking and its benefits in the West African country.

Prof Gatsi who was the keynote speaker at the forum said: “Banking is generally highly regulated whether is conventional or Islamic hence the need for BoG to be interested.

Many aspects of banking will need some adjustments including capital, capital adequacy, audit practices, human resource and corporate governance “.

Islamic banking should be promoted on the principle of alternative banking and not the promotion of Islamic faith, he said.

There is no need

Prof Gatsi explained that in the past both the Old Testament and Quran prohibit lending to neighbours with interest and there is no need to have serious difficulties regarding interest free banking principles in Islamic banking.

He quoted from Deuteronomy 23:19 “Thou shall not lend upon usury to thy brother, usury of money, usury of victuals, usury of anything that is lent upon usury……..”

Prof Gatsi therefore observed that the principle of lending without interest (riba) is not a new development, stressing that both faiths backslided on these principles due to changes in religious practices, rearrangement  of systems of governance and societal dynamics in centuries of human history.

The practice of banking without interest began again in Egypt in 1963 and spread to other Islamic Republics.

The Dean of the UCC Business School also explained that conventional banking and finance simply reward savings and investment to motivate mobilization of funds by the financial system through interest which is considered sinful by Islam to the effect that those who earned interests are to remit same to charity.

Prof Gatsi further explained that the reason why Islamic banking discussions which started in 2004 could not research effect public, governmental and regulatory attention is because of the approach and largely indoor nature of the discussion.

Highlight the prospects of Islamic banking

He advised that discussion should be open and highlight the prospects for the Ghanaian economy rather than purely on the requirements of one’s religion.

Prof Gatsi stated that using the population of Muslims as reason to introduce Islamic banking and finance in Ghana should be moderated because Ghana is a secular democracy that will not allow state regulator to promote Islamic Banking to satisfy a particular religion.

He advised that in countries such as the United Kingdom, Canada, France Germany and Italy where Islamic Banking penetration was remarkable, was due to the economic and financial market benefits and not Muslim populations.

Prof Gatsi made reference to the 2010 Global Islamic Banking Report in which the population of Turkey then had 99% Muslims with only four(4) vibrant banks with Islamic products while UK had 2.8% Muslim population with more than twenty (20) banks offering Islamic Banking products and services.

He explained that in the same report France had about 5% Muslim population with less developed Islamic Banking industry when compared to the UK.

Prof Gatsi said broader engagement with religious stakeholders, government and regulators of the financial market to focus on interest free banking is required.

He advised that calling Islamic Banking interest free banking does not in any way devalue any religion, it will only provide competition, alternative and choice for Ghanaians.

In Islamic law there is prohibition against interest, uncertainty (gharar), gambling and speculation (maysir), investment in prohibited goods and services such as alcohol, pork, tobacco, pornography and illegal drugs.

The Islamic Banking space has changed allowing for derivative instruments, bonds among others introduction of Islamic Banking will not collapse alcohol, gambling, lottery and the market for pork in the country.

To some scholars, the difference between the performance of Islamic banks and conventional banks are not pronounced.

The products are almost the same with different approaches. “We now have Islamic insurance (takaful), Islamic bond (sukuk) , joint ventures, partnerships”.

Islamic banking is actually only looking for space to provide additional and alternative products and services that generate dividend, profits and capital gains but not interest (riba).

It will not destroy the alcohol industry.  It promises to support more real sector economic activities, enhance project finance in agriculture, pharmaceuticals and traditional infrastructure sectors

The strength of a vibrant financial system is to be able to accommodate new financial products, services, instruments, and approaches to banking.

Islamic banking has penetrated North America, Europe Africa and Asia in recent past providing what is termed a “Window”

As a result many countries practicing Islamic banking do so based on the hybrid model instead of pure Islamic banking rooted in the Sharia Law.

The general view is that Islamic banking promises to remove the burden of interest for government, businesses and households to foster a thriving entrepreneurial economy predicated on profit and loss sharing instead of interest.

Legal and Regulatory Environment for Islamic Banking

 The current economic and regulatory structures for banks favour conventional banking. The regulatory foresight in Banks and specialized Deposit-taking Institutions ACT, 2016 (ACT 930) is to provide safety, soundness and stable banking sector, according to Prof Gatsi.

“Clearly our Banking regulatory structure was put in place without Islamic finance and banking principles in mind. Any decision to introduce Islamic banking should be considered such that it doesn’t dilute the potency of bank regulation bordering on investment.

This is important because under Islamic banking, Banks invest hugely in real Estate and other property via joint ventures, partnerships etc. which is not encouraged by Act 930”.

From the above, specialized deposit-taking institutions or financial holding company shall not build, purchase or take a lease of immovable property except of housing of the staff of the bank or business promise

African Eye Report

 

 

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