Islamic banking can contribute to public debt management – Prof. John Gatsi

Speaking at the 2021 Islamic Finance Conference organized by Islamic Finance Research Institute Ghana(iFRIG), Prof. Gatsi explained that introduction of Islamic Finance window in Ghana will not eradicate the dominance of the conventional financial system.



He said, Islamic finance cannot eradicate public debt but will help make great strides in relation to public infrastructure and projects without debt burden. He supported his argument by providing data on countries that are practicing Islamic banking window on their debt to GDP ratio to indicate that public debt will not be erased merely because of Islamic finance. Countries such as Egypt, France, Bahrain, Kenya, Uganda and South Africa all have public debts.

Prof. Gatsi explained that the Public Private Partnership Act, 2020 (Act 1039), provides a fertile investment opportunity for the deployment of Islamic Financial products and to attract the needed investments in the public private partnership space to deliver public infrastructure projects.

Prof. Gatsi Islamic bonds normally called sukuk will serve as alternative funding for specific infrastructure projects.

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Prof. Gatsi indicated the value for debt in Ghana is questionable as interest is being paid on loans procured for projects which have been abandoned and projects completed but not in use. He advised Bank of Ghana to speed up the process of putting up regulations in place to allow SMEs benefit from Islamic banking.

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He admonished those advocating for Islamic banking not to think that is going to be some interest free funds abundantly available. He explained that Islamic banks will act like venture capitalists who only select projects when the criteria is met to ensure sustainable entrepreneurship. He stressed that Islamic bank is very active in supporting businesses and businesses ideas and passive when it comes to personal loans.

Prof. Gatsi advised the organizers to ensure comprehensive engagement with all regulators related to the various aspects of Islamic finance products such as leasing, insurance, mortgage and banking. He further added that purely equity financing as envisaged by Islamic finance can create very high risk when structures are not built well in the arrangements.

 

Read alsoDigitalization and our common livelihood matters – Prof. John Gatsi writes


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Source Prof John Gatsi

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