Did Bright Simons Overstretch His Critique of the Bank of Ghana’s Non‑Interest Banking Draft?

Introduction

Recent commentary by Bright Simons on the Bank of Ghana Exposure Draft on Non‑Interest Banking has sparked considerable discussion within Ghana’s financial sector. This article examines whether Simons’ observations constitute a legitimate critique or an overreach that misrepresents the draft’s intent. By analysing the document, comparing international practice, and evaluating regulatory implications, we aim to provide a clear, SEO‑friendly perspective that helps readers understand the nuances of non‑interest banking in Ghana.

Key Points

Background

In 2023 the Bank of Ghana released an exposure draft aimed at governing institutions that operate without reference to Islamic terminology but adhere to Sharia‑compliant principles. The proposal follows a global trend where central banks create dedicated liquidity management tools and risk‑adjusted capital frameworks for participation banks. Ghana’s draft seeks to align these mechanisms with the country’s existing Banks and Specialised Deposit‑Taking Institutions Act, 2016 (Act 930) while preserving the secular nature of its legal system.

Analysis

Understanding the Exposure Draft

The draft outlines three core components:

1. Definition of non‑interest banking products rooted in Islamic jurisprudence.
2. Establishment of a Non‑Interest Banking Advisory Committee (NIBAC) to review product designs.
3. Creation of a Non‑Interest Financial Advisory Council (NIFAC) under the Bank of Ghana to provide final approval.

These elements are intended to ensure that non‑interest banks meet prudential standards without imposing religious labels on institutions.

Comparative International Experience

Several jurisdictions have implemented similar frameworks:

• Turkey: Islamic banks are called “participation banks” under secular law.
• Malaysia: The Islamic Banking Act permits “Islamic banking windows” within conventional banks.
• United Kingdom: Islamic finance operates under English law; the Bank of England introduced a liquidity facility for Islamic banks in 2015.

These cases demonstrate that a distinct regulatory environment can be built without amending the overarching civil code, a point relevant to Ghana’s context.

Regulatory Naming and Terminology

Bright Simons argues that renaming “Islamic banking” to “non‑interest banking” creates technical confusion. However, the draft does not mandate a religious label; it merely distinguishes the operational model. International practice shows that central banks routinely use neutral terminology:

• Turkey uses “participation banks”.
• Morocco uses “participatory banks”.
• South Africa permits “Islamic finance” under a secular regulatory umbrella.

Thus, the claim that the Bank of Ghana is “attempting to conceal” the identity of these institutions is overstated.

Tax and Accounting Implications

Tax deductibility of financing costs differs between conventional and non‑interest banks. In Ghana, interest expense on deposits is a major cost for traditional banks, whereas non‑interest banks rely on profit‑sharing arrangements. The draft acknowledges that:

• Riba (interest) is broader than conventional interest.
• Products that embed riba‑like features must be carefully vetted to avoid misleading the “pious unbanked”.
• Tax treatment should reflect the economic substance of profit‑sharing rather than the label of the instrument.

Claims that non‑interest products are 25‑30 % more expensive lack empirical support and ignore the lower funding costs associated with equity‑based financing.

Product Approval and Oversight

The draft proposes a two‑layer approval process:

1. NIBAC reviews and recommends products.
2. NIFAC, under the Bank of Ghana, grants final written approval.

This structure mirrors dispute‑resolution mechanisms in conventional banking and provides safeguards against premature or non‑compliant offerings. The suggestion that NIBAC decisions are final is inaccurate; escalation to NIFAC remains an option for unresolved disputes.

Human‑Resource and Expertise Considerations

Ghana possesses a modest but growing pool of professionals with postgraduate qualifications in Islamic finance and insurance, many of whom are trained abroad. Encouraging pilot programmes can tap this expertise, reducing reliance on foreign consultants and fostering local capacity.

Practical Advice

Stakeholders should consider the following actions to move the draft forward constructively:

• Engage in stakeholder workshops to clarify terminology and align expectations.
• Pilot non‑interest products with a limited set of banks to test regulatory pathways.
• Develop training programmes for auditors and risk managers familiar with AAOIFI standards and secular accounting frameworks.
• Monitor international best practices and adapt them to Ghana’s legal context, ensuring compliance with the Banks and Specialised Deposit‑Taking Institutions Act, 2016.

FAQ

Conclusion

Bright Simons raises valuable observations about the Bank of Ghana’s Exposure Draft on Non‑Interest Banking, yet some of his criticisms overstate the regulatory intent and the technical complexities involved. International experience shows that secular legal systems can accommodate participation banking without extensive legislative overhaul. By clarifying terminology, strengthening oversight mechanisms, and fostering local expertise, Ghana can implement a robust non‑interest banking framework that aligns with global best practices while preserving its secular regulatory foundation.