In Ghana there is currently just one sharia-compliant financial institution – Ghana Islamic Microfinance, which began as an NGO – though there is significant scope for growth.
Part of this is due to the country’s demographic make-up. Although Muslims are far from the only potential client base for IFS, as evidenced by the rollout of Islamic financing instruments in countries like the UK and Japan, sharia-compliant products could prove attractive for the roughly 17.6% of Ghana’s population that identifies as Muslim, according to the 2010 census.
That proportion rises in the Northern Region, where financial inclusion rates are lower and Muslims account for some 60% of the population.
The limited size of IFS in Ghana is largely on par with the region, according to the IMF. A 2014 report found that Islamic finance had yet to develop a significant presence in sub-Saharan Africa. Only a handful of countries have issued sukuk, for example, and IFS institutions are generally few and far between.
However, according to local press reports in August, the Bank of Ghana (BoG) may be preparing to issue the country’s first licence for a sharia-compliant bank in late 2015 or early 2016, with an accompanying reform to the regulatory framework also expected to be implemented.
In the meantime, the IMF paper suggested that the growth of Islamic finance could be catalysed by sukuk, as international sukuk issues do not require a domestic Islamic finance market.
Sukuk could help make Ghanaian sovereign debt a more attractive proposition to a wider array of international investors against the backdrop of a less certain conventional bond market, with the US Federal Reserve expected to raise interest rates and investors increasingly shying away from emerging market exposure.
The Banking Act in 2007 laid the foundation for change in the financial services industry. Since its passage, financial services in Ghana have improved tremendously. A thriving economy and growing incomes usually underline the potential of the financial sector. But Ghana has shown more promise than other countries in the region. Take Cameroon for example. It has a similar level of income, yet Ghana has more than double the number of ATMs per head of the adult population. Benin, also with a similar level of income, only has one-third of the banks per head of adult population compared to Ghana.
Services in the country have improved. The recent integration of banking ATMs among nine banks in the country, including Standard Chartered Bank, Zenith Bank and Ecobank, allows customers to use their bank cards at ATMs serviced by banks different than the card provider. Barclays created a buzz earlier this year with the announcement of deposit-taking ATMs in Ghana. The service will help to reduce the extremely long queues in banks. But these efforts are not enough.
Big ideas and little capital is the story of most Ghanaian banks. They are simply unable to meet the increasing demand from the energy, mining, oil & gas, and telecommunications sectors. Corporate banking and finance units are understaffed and inefficiently utilized. International trade thrives without adequate trade financing. Bank managers know this and are trying to rapidly improve the quality of service. But, as the story normally goes, capital investment is needed to maintain growth and meet the ever-increasing needs of consumers.