Islamic Banking: The Possible Regulatory, Operational & Cultural Roadblocks – Dr. Atuahene’s Insight

As conversations on diversifying Ghana’s financial landscape gain momentum, a new study by banking and financial consultant Dr. Richmond Atuahene warns that the establishment of Islamic banking in Ghana faces a number of hurdles.

Dr. Atuahene says the agenda faces a steep constitutional, cultural, operational, and institutional hurdles that cannot be ignored.

This was contained in his research, titled “Potential Challenges and Issues Facing the Establishment and Operationalization of Islamic Banking System: A Case of Ghana – Policy Recommendations.”

The document copied to The High Street Journal enumerates a number of issues that beg for attention as processes are underway to establish this form of banking.

Legal and Constitutional Setbacks

Dr. Atuahene highlights Ghana’s inadequate legal framework as the foremost challenge. Current laws, designed for conventional banking, do not fully support non-interest finance.

Without amendments to key banking statutes and possible constitutional clarifications, Islamic banks may face legal uncertainties and weak enforcement in court.

Religious and Cultural Misperceptions

With Christians making up over 70% of the population, the concept of Islamic banking is widely misunderstood, sometimes viewed as “banking for Muslims only.”

Overcoming this cultural and religious resistance, Dr. Atuahene stresses, requires mass public education involving religious leaders, civil society, and regulators.

Financial and Market Rigidities

He sees other major financial and market rigidities to include inadequate financial innovations, as Islamic banks must ensure Shari’ah compliance before launching new products.

Dr. Atuahene further sees a conventional system dominated by interest-based institutions, creating barriers to interbank transactions, liquidity management, and participation in treasury markets.

There is also the issue of the lack of profit-sharing finance instruments, which undermines one of Islamic banking’s core principles. He adds that the absence of secondary markets, Shari’ah-compliant liquidity tools, and short-term financial instruments will leave Islamic banks at a disadvantage.

He also indicated that there is the potential for double taxation, since Islamic finance relies on asset-based transactions that may attract levies on transfers.

Shari’ah and Human Resource Gaps

The study warns of a severe shortage of Shari’ah scholars trained in modern finance, law, and economics. This, he says, is essential for ensuring compliance and product innovation.

Coupled with a general lack of trained professionals in Islamic finance, this threatens the sector’s credibility. Ghanaian universities and regulators, Dr. Atuahene notes, must invest heavily in research, teaching, and professional training to close this gap.

Institutional and Regulatory Weaknesses

Weak supervision of existing Specialized Deposit-Taking Institutions (SDTIs) already poses risks to financial stability. This, he says, adding Islamic banks without strengthening regulation could worsen vulnerabilities.

Disparities in accounting standards, inappropriate institutional frameworks, and inadequate infrastructure such as ATMs, digital platforms, and cybersecurity systems, are also flagged as significant threats.

Governance and Trust Issues

Finally, Dr. Atuahene warns that Ghana’s history of corporate governance failures in banking cannot be ignored. Without strict governance and ethical safeguards, Islamic banks could fall prey to the same mismanagement that toppled several conventional banks.

The Bottomline

Ghana’s push toward Islamic banking may expand financial inclusion and provide alternative models for savings and investment, but the financial and banking consultant says the road is fraught with challenges.

From constitutional reforms and cultural acceptance to Shari’ah expertise, liquidity tools, and governance, the hurdles are many and complex. Ghana must act decisively to reform laws, build human capacity, reform regulatory frameworks, and launch massive public awareness campaigns.

Read More