Professor John Gatsi, Dean of the School of Business Studies at the University of Cape Coast (UCC), has made a strong case for the adoption of Islamic banking to spur economic growth.

He said the introduction of that banking system would diversify financial sources for developmental projects, create new jobs, promote transparency and accountability and ensure proper debt management.

Prof Gatsi was delivering his inaugural lecture at UCC on the theme: “Islamic banking options: Exploring an inclusive alternative or complement.”

The lecture focused on the need to adopt Islamic banking in Ghana to promote financial inclusion and freedom of choice of financial products and services.

It discussed the history of Islamic banking and how it differed from conventional banking.

It further highlighted the various options available under Islamic banking and the unique governance structure.

Islamic banking, which is founded on Islamic principles, provides a system where lending and borrowing take place without interest and the proceeds from engagements are shared based on profit and loss sharing agreements.

Professor Gatsi said he was not arguing for conventional banking to be replaced with Islamic banking, but that it was important to complement the former with the latter to help reduce poverty, promote social justice, and mitigate debt burden.

He, therefore, called on the Bank of Ghana to create the necessary environment for the adoption of the new banking system and urged government to diversify its sources of funding for infrastructural projects.

The lecture was graced by many distinguished personalities including stalwarts of the opposition National Democratic Congress led by Prof Naana Jane Opoku Agyemang, the former running mate to former President John Dramani Mahama, traditional leaders as well as eminent members of the academic community.

Professor Gatsi observed that attempts to introduce the system since 2004 had failed and called for renewed efforts to establish it.

As a secular state with an enviable religious tolerance, he said he did not foresee any pushbacks like it happened in many African countries where the system had been introduced.

Professor Gatsi argued that Islamic banking would significantly reduce the debt burden on government because, unlike the conventional financial system, government would not start paying coupons on bonds until the project was completed.

He identified debt servicing arrangement under the conventional financial system as expensive and difficult to honour.

“Under Islamic Banking, debt management is such that when capital is acquired, on the other side, you see the asset that is created by the capital.

“But we have found ourselves in a situation where we borrow so much but we cannot account for so much in terms of the assets that have been created by the debts that have been procured,” he said.

“…that is the reason why we are seeing so many uncompleted projects we cannot complete because of the way we manage debt,” he added.

He observed that in the Middle East and North African (MENA) countries where Islamic banking operated, there was an average debt to GDP ratio of 40 per cent, stressing the need to adopt the system.

Prof Gatsi indicated further that Islamic banking was well aligned with the tenets of joint venture and public-private partnership (PPP) and would encourage the execution of more developmental projects.

“We have laid the foundation by attempting some activities regarding PPP and that will help foster the introduction of Islamic banking, especially Islamic bond to finance infrastructure,” he advised.

He added that the adoption of Islamic banking would add its portfolio of financial products and services to conventional banking services to promote inclusion.

“There are many people who do not engage in banking activities; some because of their religion, some because there are no attractive products in the conventional banking system.

“So, when you introduce Islamic banking, that will provide alternative for inclusion and promote social justice,” he said.

In line with Islamic principles, the banking system prohibited the funding of certain items and activities such as alcoholic beverages and gambling, he said.

Professor Gasti argued further that Islamic banking system protected the environment such that its principles did not allow it to finance activities which destroyed the environment.

Similarly, he said, it would largely contribute to the achievement of the Sustainable Development Goals.