{"id":106811,"date":"2025-12-14T15:20:20","date_gmt":"2025-12-14T15:20:20","guid":{"rendered":"https:\/\/sotnews.agency\/?p=106811"},"modified":"2025-12-14T15:20:20","modified_gmt":"2025-12-14T15:20:20","slug":"bright-simons-is-bank-of-ghanas-islamic-banking-rebrand-too-clever-by-half","status":"publish","type":"post","link":"https:\/\/sotnews.agency\/?p=106811","title":{"rendered":"Bright Simons: Is Bank of Ghana\u2019s \u201cIslamic Banking\u201d rebrand too clever by half?"},"content":{"rendered":"
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\n \t<\/i> Read Time:<\/span>22 Minute, 0 Second <\/div>\n\n <\/div>
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Yesterday, I read the\u00a0\u201cexposure draft\u201d of the Bank of Ghana\u2019s\u00a0Guideline for the Regulation and Supervision of Non-Interest Banking<\/em>.<\/em><\/p>\n

The first thing that struck me is that the central bank\u2019s strategic decision to rebrand \u201cIslamic Banking\u201d as \u201cNon-Interest Banking\u201d (NIB), while understandable as a bid to avoid the kind of needless\u00a0controversy\u00a0sparked in Nigeria in 2011 when the Central Bank of Nigeria (CBN) first introduced Islamic Banking, has ended up creating unnecessary technical confusion.<\/p>\n

\"Bright
Simplified diagram of a classic Islamic Banking Model<\/em>
Source: Nafiz (2019)<\/em><\/figcaption><\/figure>\n

The Bank of Ghana (BoG) sets out to strip religion from so-called \u201cnon-interest banking\u201d by placing a prohibition on religious symbolism (Paragraph 85) but then proceeds to demand that all participants in the proposed non-interest banking industry also adhere to\u00a0AAOIFI<\/em>\u00a0standards (Paragraph 6).<\/p>\n

AAOIFI, founded in Bahrain in 1991, means Accounting and Auditing Organization for\u00a0Islamic<\/strong>\u00a0Financial Institutions\u00a0(AAOIFI<\/strong>). The profound market identity crisis should be obvious to all.<\/p>\n

The governance structure that the BoG has ended up proposing is bifurcated between an internal\u00a0Non-Interest Banking Advisory Committee<\/em>\u00a0(NIBAC) and an external\u00a0Non-Interest Financial Advisory Council<\/em>\u00a0(NIFAC). A \u201cclash of standards\u201d between secular prudential norms and religious stipulations is inevitable as I will explain shortly.<\/p>\n

Furthermore, the \u201cWindows\u201d model (Part IV), which allows conventional banks to also provide Islamic Banking products, could easily, because of this double-personality approach, end up creating risks of cross-contamination and regulatory arbitrage.<\/p>\n

One way this could happen is where conventional banks exploit the fungibility of capital to leverage non-interest banking tax advantages (which may be required for certain purposes as I will explain to avoid double-taxation), or indeed any other regulatory concessions, without adhering to the spirit of risk-sharing that defines the very foundation of non-interest banking.<\/p>\n

A bit of history<\/h3>\n

The Exposure Draft of December 9, 2025, arrives nearly a decade after the passage of the\u00a0Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930)<\/em>. Act 930 was born following the microfinance crises of the early 2010s to provide a holistic framework for risk management across the entire banking landscape.<\/p>\n

The whole logic of Act 930 is rooted in the concept of \u201cintermediation\u201d, that is to say, the taking of deposits and the lending of funds for interest.<\/p>\n

The first few paragraphs of the Exposure Draft are very explicit about its objective: \u201cto meet the growing interest from individuals, banks, and financial institutions for the introduction of Non-Interest Banking (NIB) products and services\u201d. It should be obvious that what is being introduced is not some marginal footnote to how banking is done in Ghana but a truly parallel regime.<\/p>\n

To navigate this inherent tension, the BoG has adopted a strategy of playing with words. It starts by stripping the term \u201cIslamic\u201d from the regulation, thereby hoping to secularize the\u00a0mechanism<\/em>\u00a0of the finance while retaining its\u00a0substance<\/em>. All the while trying to make it look as if \u201cinterest\u201d has always been a flexible notion in mainstream banking in Ghana and there is no real need to resort to Islamic principles to get to \u201cnon-interest banking\u201d.<\/p>\n

This is evident in the Title and Paragraph 1, which refer strictly to \u201cNon-Interest Banking\u201d. My goal in this essay is to show that this rebranding is superficial.<\/p>\n

Paragraph 5(k) explicitly anchors the entire guideline in the standards of the\u00a0Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI)<\/em>. As mentioned earlier on, and shall be elaborated further, the BoG finds itself grappling with a fundamental contradiction: the regulator insists the system is \u201cNon-Interest\u201d (a secular, descriptive, definition) while legally binding it to \u201cIslamic\u201d (a religious, prohibitive, definition) standards.<\/sup><\/p>\n

The definitions lose their moorings<\/h4>\n

Paragraph 7 serves as the glossary of the regime. It defines \u201cNon-Interest Banking\u201d as business consistent with \u201cNon-Interest Banking and Finance (NIBF) sources\u201d.\u00a0<\/sup>This is circular logic. The definition relies on the very term it seeks to define. More critically, the definitions of the specific contracts are ALL derived directly from classical Islamic\u00a0Fiqh<\/em>\u00a0(jurisprudence):<\/p>\n

    \n
  • Mudarabah<\/em>\u00a0is defined as a partnership between\u00a0rabbul maal<\/em>\u00a0(capital provider) and\u00a0mudarib<\/em>\u00a0(manager).<\/li>\n
  • Gharar<\/em>\u00a0is defined as excessive uncertainty.<\/li>\n
  • Maysir<\/em>\u00a0is defined as gambling.<\/li>\n<\/ul>\n

    What at all is going on here?<\/p>\n

    These terms have no foundation in English Common Law or Ghanaian Statutory Law. By importing these Arabic legal terms into a \u201cNon-Interest\u201d guideline without a primary \u201cIslamic Banking Act\u201d to define them at a statutory level, the BoG leaves their interpretation open to the secular courts.<\/p>\n

    \"Bright
    Quick crash-course on Islamic Banking key terms<\/em>
    Source: Beloucif et al (2017)<\/em><\/figcaption><\/figure>\n

    What happens when a dispute arises regarding a\u00a0Mudarabah<\/em>\u00a0contract? I insist that all a Ghanaian judge can do is look to the definitions in Paragraph 7. However, Paragraph 7 refers to \u201cestablished NIBF sources.\u201d If the judge consults AAOIFI (as mandated by Paragraph 5), they are effectively applying religious law. Are they equipped to do it? Or are we going to have a specialised bench to support this abrupt legal reality? If the Judges choose instead to apply the Companies Act 2019 (Act 992), they may view the arrangement as a simple limited liability partnership. That could potentially void the specific risk-sharing provisions that make the arrangement Shariah-compliant. And for what? Avoidance of even the most minimal controversy?<\/p>\n

    Regular readers of this website would immediately recognise the \u201ckatanomics\u201d syndrome at work. Without clear policy rationales, Ghana is already rushing to create legally binding precepts. Let\u2019s look at some of these issues in detail.<\/p>\n

    The Prohibition of Religious Symbols (Paragraph 85)<\/h4>\n

    Paragraph 85 represents the apex of this regulatory confusion. It mandates:<\/p>\n

    \u201cFor the avoidance of doubt, the registered or licensed name of a NIBI shall not have any religious connotation, symbol or any other related expression or derivation, as may be determined by the Bank.\u201d<\/em>\u00a01<\/sup><\/p>\n

    Behold a severe \u201cSignaling Problem.\u201d Islamic banking relies heavily on trust and identity. The target demographic (the pious unbanked) needs assurance that the bank is not merely a conventional bank disguised as a charity. They look for signifiers like \u201cIslamic,\u201d \u201cShariah,\u201d or symbols like the crescent or specific calligraphic styles. By banning these, the BoG raises the\u00a0Information Asymmetry<\/em>\u00a0costs for consumers.<\/p>\n

    Let us remember that it is a competitive market. Islamic Banking (or call it \u201cNon-Interest Banking with Islamic Characteristics\u201d) places fetters on bankers. The only way for operators to regain some footing in the market is to draw strongly on their religious differentiation by targeting customers making decisions on the strength of certain ethical and identity drivers.<\/p>\n

    It is not as if we haven\u2019t tried this kind of loose, hollow, Islamic banking approach before. Under the Wampah administration, a group of Saudi investors were licensed to set up Makkah Bank. After much huffing and puffing, the endeavour came to nought and the license was pulled in 2016. We have also had Islamic microfinance banks like Salam and GMIF try to penetrate and fail. A country with a national learning tradition would draw on all these lessons.<\/p>\n

    Confusing \u201cRiba\u201d with \u201cInterest\u201d<\/h3>\n

    Paragraph 7 states:\u00a0\u201cRiba means any predetermined, fixed or guaranteed interest\u2026 For the purposes of this Guideline, it is synonymous with \u2018interest\u2019\u2026\u201d<\/em>.1<\/sup><\/p>\n

    This statutory equation of\u00a0Riba<\/em>\u00a0with\u00a0Interest<\/em>\u00a0is a dangerous oversimplification that creates regulatory arbitrage risks. In Islamic jurisprudence,\u00a0Riba<\/em>\u00a0is broader. It includes\u00a0Riba al-Fadl<\/em>\u00a0(usury of excess in commodity exchange).<\/p>\n

    If\u00a0Riba<\/em>\u00a0is legally defined\u00a0only<\/em>\u00a0as interest, a bank could theoretically structure a transaction that involves an unequal exchange of gold or currencies (which is classically\u00a0Riba<\/em>) but does not involve \u201cinterest\u201d in the conventional sense. Under the Draft\u2019s definition, this might be permitted.<\/p>\n

    Conversely, the strict ban on \u201cinterest\u201d might create friction with the Ghana Revenue Authority (GRA), which treats interest as a specific deductible expense. If the non-interest banking institution (NIBI) claims it does not pay \u201cinterest\u201d but rather \u201cprofit,\u201d the GRA may deny tax deductibility, making NIB products 25 to 30% more expensive (the corporate tax rate) than conventional loans. This is precisely the tax treatment complexity I mentioned earlier.<\/p>\n

    Compliance Structuring<\/h3>\n

    The Exposure Draft creates two new bodies:<\/p>\n

      \n
    1. Non-Interest Banking Advisory Committee (NIBAC): An internal body within each NIBI (Paragraph 69).<\/li>\n
    2. Non-Interest Financial Advisory Council (NIFAC): An external advisory body to the Bank of Ghana (Paragraph 80).<\/li>\n<\/ol>\n

      Paragraph 69 mandates that every NIBI must have a NIBAC. Paragraph 73 states that\u00a0\u201cRemuneration for NIBAC shall be determined by the Board of the NIBI.\u201d<\/em>.<\/sup><\/p>\n

      The NIBAC is responsible for ensuring the bank\u2019s compliance with NIB principles (Paragraph 74). Essentially, they are the \u201creligious auditors.\u201d However, they are paid by the very Board they are supposed to police. This creates a classic principal-agent problem. In a drive for profitability, a Board might pressure the NIBAC to approve a borderline product (e.g., a\u00a0Tawarruq<\/em>\u00a0facility that closely mimics a personal loan). Since the NIBAC members serve renewable terms (Paragraph 73), they have a financial incentive to be \u201cbusiness-friendly\u201d rather than strict.<\/p>\n

      A similar bizarre thing the Exposure Draft does is create a bizarre judicial role for the NIBAC. Paragraph 55 states:\u00a0\u201cThe NIBI shall resolve such disputed matters using the NIBAC as an internal adjudicatory structure.\u201d<\/em>\u00a0This violates the principle of natural justice,\u00a0nemo judex in causa sua<\/em>\u00a0(no one should be a judge in their own cause). If a customer sues the bank claiming a product is\u00a0Haram<\/em>\u00a0(impermissible) and void, the case is heard by the NIBAC (the very body that approved the product in the first place, according to Paragraph 47). This structure stands a high risk of being struck down by Ghana\u2019s Commercial Courts as unfair, creating legal friction.<\/p>\n

      Finding enough professionals in Ghana who are skilled in both conventional banking compliance and Islamic jurisprudence is another issue. But there are enough players springing up to fill the gap (see below, for example), so I won\u2019t dwell too much on that issue.<\/p>\n

      \"Bright<\/figure>\n

      Paragraph 80 establishes the NIFAC to advise the Bank of Ghana. Paragraph 51 states that products require\u00a0\u201csatisfactory recommendation by NIBAC and NIFAC.\u201d<\/em><\/p>\n

      The inevitable outcome, whether BoG strategists want to admit it publicly or not, is a \u201cSupreme Shariah Board\u201d within the secular Central Bank. If NIFAC rejects a product based on religious reasoning (e.g. by flagging a contract as containing\u00a0Gharar<\/em>), the Bank of Ghana is enforcing a religious edict.<\/p>\n

      In a secular state like Ghana, without explicit accommodation created by substantive law (as opposed to the legal precepts embodied in the proposed guidelines) this opens the BoG to administrative law challenges. Can a secular regulator deny a license based on a theological interpretation without an amendment to its enabling law?<\/p>\n

      The issue of multiple Islamic schools of jurisprudence is, however, outside the scope of this short essay.<\/p>\n

      \u00a0\u201cWindow\u201d Segregation<\/h3>\n

      Paragraph 62 mandates: \u201cThe NIBI shall establish a system that ensures that there is no commingling of funds relating to the NIBI business with the conventional business activities of the entity.\u201d<\/p>\n

      Paragraph 63 reinforces this with the \u201cNon-Interest Finance Fund (NIFF)\u201d requirement.<\/p>\n

      However, Paragraph 60 allows the window to\u00a0\u201coperate using the existing facilities or branch network of the conventional bank.\u201d\u00a0<\/em>We must bear in mind that:<\/p>\n

        \n
      • While a bank\u2019s\u00a0ledger<\/em>\u00a0may be separate (Par 67), the\u00a0cash<\/em>\u00a0is physically commingled at the branch level. When a customer deposits cash into an NIB account at a conventional branch, that physical cash goes into a safe mixed with conventional deposits. It is only separated\u00a0accounting-wise<\/em>\u00a0later.<\/li>\n
      • In a liquidity crisis, money is fungible. If the conventional parent bank faces a run, will it strictly ring-fence the NIFF? Or will it \u201cborrow\u201d from the NIFF to meet conventional withdrawal demands, perhaps using an internal\u00a0Qard<\/em>\u00a0(loan) mechanism? History in other jurisdictions suggests that without distinct legal entity status (subsidiarization), commingling is inevitable during stress events.<\/li>\n
      • If the conventional corporate parent is involved in financing a brewery or a pig farm (activities prohibited in NIB), the \u201cpurity\u201d of the NIB window is conceptually compromised. The Draft attempts to solve this with \u201cService Level Agreements\u201d (Paragraph 61), but an SLA cannot cure the fact that the ultimate beneficial owner of the NIB profit is a conventional, interest-based shareholder base.<\/li>\n<\/ul>\n

        Is there a Fintech Loophole (Paragraph 46)<\/h3>\n

        Paragraph 46 imposes a draconian restriction on Fintechs:<\/p>\n

        \u201cAny FINTECH company that develops\u2026 non-interest financial product shall enter into a prior written agreement with a licensed NIBI\u2026 the NIBI must assume responsibility\u2026\u201d<\/em><\/sup><\/p>\n

        This clause effectively kills independent Islamic Fintech innovation in Ghana.<\/p>\n

          \n
        • It forces agile startups to partner with incumbent banks (NIBIs). The NIBIs, acting as gatekeepers, can charge rent-seeking fees for this \u201csponsorship.<\/li>\n
        • Mobile Money (MoMo) is the driver of inclusion in Ghana. By tethering NIB MoMo products to the heavy compliance infrastructure of a bank (Paragraph 46), the Exposure Draft increases the cost of delivery.<\/li>\n<\/ul>\n

          The Crux of the Matter<\/strong><\/p>\n

          The main point is that many of these issues have been thoroughly addressed in proper, fully-fledged, Islamic Banking jurisdictions in places like the Gulf. One should not reinvent the wheel. But embracing mature jurisprudence requires open admission and clear messaging.<\/p>\n

          We just have to deal with the fact that in modern times, the only tradition that has developed non-interest banking to a granular level is the Islamic tradition. Pretending otherwise just leads to confusion.<\/p>\n

          It is true that a millennium ago, there were advanced Christian non-interest banking systems. The church had a ban on \u201cusury\u201d, which though meant \u201cexcessive interest\u201d soon became synonymous with interest itself. In fact, this history is intertwined with the history of how Jews became such prominent financiers in the modern era.<\/p>\n

          When Pope Innocent III\u00a0banned Jews in Europe and elsewhere in Christendom\u00a0from most professions and trades in 1215, by edict of the 4th<\/sup>\u00a0Lateran Council, he permitted them the practice of usury. Though Judaism also frowns on usury, Jewish theologians had tended to restrict it to Jew-on-Jew usury. Hence, Mediaeval Jews could lend liberally to Christians, whilst Christian financiers, like the Knights Templar, had to contend with more restrictive instruments like Bills of Exchange.<\/p>\n

          But by the time of the reformer Calvin, the Christian ire against interest\u00a0had started to dissipate. By the Enlightenment, the notion of \u201cChristian Finance\u201d was more or less fringe. Thus, since 1600, much of the texture and logic of how non-interest banking should work has been developed within Islam. Any attempt to deny this reality simply leads to confusion.<\/p>\n

          Frictions over Essences<\/h2>\n

          For example, Paragraph 51 lists the permissible contracts in the non-interest banking regime. Each introduces specific frictions if naively and simplistically overlaid on Ghana\u2019s secular commercial law.<\/p>\n

          Murabahah (Cost-Plus Financing) versus The Loans Act<\/h3>\n