Policy Gamble at BoG! Non-Interest Banking Could Blow Up Economy – Bright Simons

A newly released exposure draft by the Bank of Ghana (BoG) on the regulation and supervision of Non-Interest Banking (NIB) has drawn strong criticism that the framework is riddled with conceptual contradictions, legal uncertainties, and structural weaknesses that could undermine its effectiveness if implemented in its current form.

In a detailed policy critique, Bright Simons, Honorary Vice President of IMANI Ghana, has said the draft Guideline for the Regulation and Supervision of Non-Interest Banking is described as suffering from a fundamental “identity crisis,” stemming from the BoG’s attempt to rebrand Islamic Banking as “Non-Interest Banking” while simultaneously anchoring the regime in explicitly Islamic standards.

The BoG’s decision to avoid the term “Islamic Banking” is widely viewed as a strategic move to avert religious controversy, similar to debates that followed Nigeria’s introduction of Islamic banking in 2011. However, critics argue that the rebranding has created more confusion than clarity.

While the draft expressly prohibits religious symbolism or naming conventions for licensed institutions, it nonetheless mandates compliance with standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based body founded to govern Islamic finance.

“This creates a profound contradiction,” Bright Simons notes. “The regulator insists the system is secular ‘non-interest banking’ while legally binding it to religiously grounded Islamic finance standards.”

A major concern raised is the incorporation of classical Islamic jurisprudential concepts such as Mudarabah, Murabahah, Gharar, and Maysir into Ghana’s regulatory framework without a dedicated Islamic Banking Act to define their legal standing.

According to Mr. Simons, Ghanaian courts, which operate under common law and statutory frameworks, may be ill-equipped to adjudicate disputes involving such contracts. In the absence of clear statutory definitions, judges could be forced either to rely on AAOIFI standards, effectively applying religious law, or reinterpret the contracts under existing commercial legislation, potentially invalidating their intended risk-sharing structures.

The draft establishes internal and external advisory bodies, the Non-Interest Banking Advisory Committee (NIBAC) within each institution, and the Non-Interest Financial Advisory Council (NIFAC) at the central bank level. These bodies are tasked with ensuring compliance with non-interest principles.

However, Mr. Simons warn of serious governance flaws. NIBAC members are remunerated by the very boards they are meant to oversee, creating potential conflicts of interest. Additionally, the draft empowers NIBAC to act as an internal dispute resolution body in cases where customers challenge the permissibility of products, a move described as a violation of the principle of natural justice.

Bright Simon also highlights the absence of tax harmonisation measures. Products such as Murabahah, structured as asset sales rather than loans, could attract VAT and other levies, making them significantly more expensive than conventional loans unless Ghana’s tax laws are amended.

Liquidity management presents another challenge. The draft prohibits NIB institutions from investing in interest-bearing instruments such as Treasury Bills, which are the backbone of Ghana’s money market. Without alternatives like sovereign Sukuk or a Shariah-compliant central bank liquidity facility, NIB institutions may be forced to hold excessive cash, depressing profitability and increasing systemic risk.

On capital adequacy, the application of conventional Basel risk weights to Islamic partnership contracts is seen as either underestimating or over-penalising risk, depending on interpretation—an ambiguity left unresolved in the draft.

While the BoG positions non-interest banking as a tool for financial inclusion, especially among the unbanked, the draft imposes strict limitations on fintech participation. Islamic fintech firms would be required to operate only through licensed NIB institutions, a provision critics say stifles innovation and entrenches incumbent banks as gatekeepers.

Moreover, the ban on religious identifiers may increase information asymmetry for the very demographic non-interest banking seeks to attract, particularly faith-driven customers who rely on clear ethical and religious signals when choosing financial services.

Drawing comparisons with Nigeria and other jurisdictions, the critique argues that successful Islamic banking regimes have relied on transparent acknowledgment of their religious foundations, supported by comprehensive legislation covering taxation, liquidity instruments, deposit protection, and dispute resolution.

Nigeria’s experience, it notes, shows that avoiding the “Islamic” label did little to eliminate prejudice and may have slowed adoption, while delays in tax reforms hindered competitiveness for years.

In concluding assessment, Bright Simons warns that without substantive legislative backing, such as tax amendments, Sukuk laws, and clear judicial frameworks Ghana’s non-interest banking sector risks becoming a “zombie industry”: heavily regulated on paper but commercially irrelevant in practice.

“The only tradition that has developed non-interest banking to a granular level in modern times is the Islamic tradition,” the critique argues. “Pretending otherwise simply leads to confusion.”