Ghana to use Malaysia as a springboard into Sukuk market

Islamic finance is almost non-existent in Ghana. Multiple attempts to create an Islamic bank and carve out dedicated regulations have failed. However, MARC ROUSSOT finds that the sovereign is far from giving up, as it is determined to tap the Islamic capital markets.

“We consider Islamic finance as an alternative source of funding for the development of projects. This is the reason why we are planning a Sukuk issuance even though we do not have a precise timeline,” Godwin Anku, the head of development finance at the Ministry of Finance, tells IFN.

Ghana has actually been mulling the issuance of Sukuk for quite some time now. In August 2016, a technical delegation composed of the Central Bank of Ghana, the Ministry of Finance, the National Insurance Commission, the Attorney-General’s Department and the Revenue Authority, traveled to Malaysia to understand how Islamic finance works.

During this trip, the sovereign discussed with Maybank and Zico Law on the process for issuing Islamic papers. The decision that has been taken was to issue Sukuk in the Malaysian capital market. “Maybank will play the role of lead underwriter and Zico will take care of all the legal documents,” details Godwin.

However, the process stalled in December last year on the back of the general election that brought to power a new parliament and a new president. “Because of the change in government, the momentum went down,” concedes Godwin.

That being said, the work achieved until now is not in vain. Indeed, the new government has not abandoned the project to issue Sukuk and is in the midst of reviewing what has been done so far.

Moreover, Mahamudu Bawumia, the vice-president of Ghana and the head of the country’s Economic Management Team, an 11-member team that is tasked to put Ghana’s economy back on track, recently stated that the country will adopt Islamic finance as an alternative source of funding. “This statement shows a high level of acceptance of Islamic finance,” says Godwin positively.

However, Abdul-Aziz Sulley, the managing director of Data Partners, a Ghanaian company that provides advisory services on Islamic finance, is less optimistic.

The population could hamper a potential Sukuk issuance as “conventional bonds in recent times have already created a lot of public outcry with issues relating to irregularities and the financial burdens it creates on the economy,” he says. Besides that, some key questions remain unanswered. What will be the size of the Sukuk? In which currency is the Sukuk going to be denominated? What are the underlying assets?

Taking a look at what happened in the past may provide some answers. Malaysia has already been used by at least one sovereign, namely Kazakhstan, to issue a ringgit-denominated Sukuk facility in 2012. The chosen structure was a commodity Murabahah with palm oil as the underlying asset. IFN understands that Ghana is likely to use the same model.

The roots
The introduction, as well as the development, of Islamic finance in Ghana is not a recent topic.

“I think it all started in January 2004, when my organization held the first International Islamic Banking seminar in Accra to introduce Islamic finance to the Ghanaian authorities,” recalls Baba Yunus Muhammad, CEO and the chairman of Africa Islamic Economic Foundation. During the event, the then deputy governor of the central bank delivered a keynote speech in which he promised to accommodate Islamic finance.

“Thirteen years later, we are still where we were in 2004,” shares a bitter Baba. “The only difference is that, at least these days you hear of Islamic finance discourse in government and unofficial circles,” he adds.

During these 13 years, Ghana has never adopted any particular regulation to accommodate Shariah compliant banks or insurances even though frameworks have been tabled twice before two different governments — those of John Kufuor and John Atta Mills, according to Mohammed-Fawzi Amadu, the vice-president of Africa Islamic Economic Foundation. The perception of Islamic finance by the Christian majority might be one of the reasons why the bills never went through.

Despite this lack of regulations, Makkah Bank, a Saudi-based financial institution, tried to foray into Ghana’s untapped market. The initiative failed after the central bank revoked its provisional Islamic banking license in May 2015 following the failure from the financier to meet key requirements on two occasions for the granting of a full operation license. “I have been told that there was a breakdown in negotiations with their local partner, which led them to miss the expectations and deadlines of the central bank,” explains Mohammed-Fawzi.

In the same year, an offer from the IDB to seed fund an Islamic bank fell through due to the lack of regulations. In parallel, the multilateral financier proposed for Ghana to join the organization, but it has yet to happen up until today. A delegation from the IDB is also supposed to visit Accra soon.

Even though most of the attempts to develop Islamic finance in Ghana have failed, Islamic finance is not completely absent from the country as there are still various organizations that have developed Islamic products. As an example, Salaam Capital offers Shariah compliant microfinance solutions.

This article first appeared in IFN Volume 14 Issue 25 on the 21st of June 2017

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