Ghana urged to adopt Islamic finance sooner as ‘capitalism failing’ the world economy

Adnan Adams Mohammed

A Ghanaian Islamic Finance expert has called on Ghana government to adopt Islamic finance sooner after conceding to comments of billionaire Ray Dalio, manager of the world's largest hedge fund Bridgewater, that capitalism is failing the world and hopeful that Islamic economics will be the solution.

Mr Dalio recently shocked the world when he announced that, "capitalism is failing" and that a "revolution" is coming.

Dalio’s statements matter, not only because of how strongly worded they are but also because of how topical they are in today’s news climate. They are significant because of who Dalio is, that is to say probably the most successful hedge fund manager in the world. An Islamic finance expert commented, last week, that, “this was the equivalent of the Pope declaring that Catholicism is failing.”

Bringing the discussion to Ghanaian level, Mohammed‐Fawzi A. Amadu, Director of Razi’a Ltd, believes that, “Islamic finance will bring lots of benefit to Ghana. The benefits depending on how seriously the government understands and commits to the process will be multi-faceted with the government, financial industry and the growing Muslim community being larger beneficiaries.”

Muhammed Yesilhark, a philanthropist, a trustee of the UK National Zakat Foundation and founder of the Q2Q Foundation in an article published in www.euronews.com last month noted that, there is no denying that global inequality is at unsustainable levels, and that interest-based economies are no longer fit for purpose (in many countries interest rates are too low to incentivize saving at all). I believe that Islamic economics, with its 2.5% zakat wealth tax (and much lower taxes in other areas) might give us a clue on how to eliminate the worst social inequality. And with a prohibition of abusive high-interest businesses and the incentivization away from interest-based savings accounts, it can reinvigorate the global economy. These are not just Islamic economic concepts; these are universalist traditional Abrahamic ethics, and a common sense way for us all to enjoy a truly free market.

“Once we strip away the Arabic terminology, concepts like zakat can return our economies to the common sense-based, transparent and equitable set up that the architects of modern capitalism envisaged”, he intimated.

Commenting on Dalio’s words, Mr Yesilhark expressed that the words’ are perhaps more shocking because they violate one of the most sacred unwritten rules of the global rich: “you’re not allowed to criticise capitalism if you have benefited hugely from it. Protest - or even displeasure - with the system is a luxury only the poor can afford. It’s normal to see cleaners, or even Uber drivers, angry at inequality. It is less normal to see the world’s wealthiest publicly stating that the order to which they owe their success is “not providing the American Dream.”

The “no protest for the rich” rule has led billionaires to channel their sense of responsibility, frustration or even guilt into philanthropy. This means that we seldom have the wealthy discuss these issues, let alone the root causes from which these problems arise. Those root causes go deeper than many of us realise and addressing them will mean re-examining not only our economics, but our politics and values.

Most of us want a societal order where there isn’t a huge vacuum between the classes. Unfortunately, this gap keeps widening as “casino capitalism” and high interest consumer products entrench divisions.

To create societies where there is mutual respect and compassion, we need an environment of reconciliation between the elites and the masses. The only way to achieve this is through a wealth tax such as the payment of zakat - one of the pillars of Islam - and an effective tool in addressing our current issues. But first, to reform a failing capitalism, we need to fix two things: taxation and the interest rate system.

Taxation is easier (and far less left field) to critique since there is an emerging consensus that the global tax system simply no longer works. Through a combination of tax avoidance schemes, tax havens and even relatively innocent methods like transfer pricing, high net worth individuals and their corporations have very little (if any) tax to pay on their wealth. In the absence of effective wealth taxes, governments have no choice but to enforce taxes that perhaps unfairly target the poor, like sales tax and inheritance tax. The injustice of some of these taxes further normalises tax avoidance and polarises society even more.

Expatiating on the Ghanaian content on the topic, Mr Fawzi Amadu recounted that, currently the financial framework existing in Ghana does not accommodate the establishment of any meaningful Islamic Finance venture. This is obviously because Islamic Finance was not in existence as a viable alternative when the framework was put together.

The closest that practices in Ghana come to Islamic Finance are the introduction of a savings and loans program for Muslims by -- Metropolitan Insurance Company Limited

(MET) and also micro finance programs that are being carried out by some Islamic charitable organizations.

In 2004 there was a conference on Islamic Finance that was organized in Accra, Ghana with the Governor of the Bank of Ghana in attendance and giving a positive indication of the Bank’s readiness to help create the necessary environment for the introduction of Islamic Finance.

The absence of established Islamic Finance in Ghana obviously have got effects on the people and economy. Among some of the effects are that: Ghana and in particular its Muslim population are losing socio-economically and financially because of the lack of Islamic Finance. This is the case for many reasons.

The Muslim community in Ghana, a significant portion of Ghana’s population, face psychological distress when it comes to their financial dealings. This is because their religion forbids dealing in interest and yet most of the products and services available to them when it comes to financial dealings are mostly interest based. So some of them gave up in despair and use what is available on the market while taking consolation that since the country’s laws do not offer them an alternative, ALLAH will forgive them for their actions. There are those who deal with the market with distress, and finally there are those who completely avoid using the formal financial sector.

The attitude of the Muslim community to the existing financial system is one of considerable distress. This means, the Ghanaian financial system is operating sub-optimally to the extent that the Muslim population is not patronizing the banking and other financial products and services or when they patronize it reservedly. Efficiency of a financial system is partly obtained by pooling resources from those that have savings and channeling the pooled resources to those that need to raise money. So the more savings that can be pooled together for distribution among the savings deficit population, the more efficient the financial system is at deposit mobilization. Efficiency definitely suffers to the extent that some depositors (in this case Muslims) keep their money away from the system or to the extent that they use their money in sub-optimal ways.

Mr Fawzi Amadu has enumerated a number of way outs to help introduce a vibrant Islamic finance and economics to Ghana as it has a lot to benefit. The government and other stakeholders have to create the enabling environment for the introduction of Islamic finance in the country. The following are the most important first steps: taking cue from Britain, Japan, and lately France (among others), the government through the Ministry of Finance must initiate a process to introduce legislation to facilitate the implementation of Islamic Finance. This will send the right signal to the Islamic Financial industry that the government of Ghana is interested in what they have to offer and is ready to work with them to facilitate their establishment in Ghana.

The Bank of Ghana must then create a framework for Islamic Finance and have this enacted into law by amending the existing Banking Act.

Also, the Government should consider joining the Organization of Islamic Countries (an organization that all West African countries except Ghana and Liberia are associated with). This action will increase the confidence of the Islamic Financial industry in the commitment of the government of Ghana to Islamic Finance, especially because this will allow Ghana to upgrade its relationship with the Islamic Development Bank (a body akin to the World Bank to the OIC) which has great credibility within the Islamic Finance Industry and whose vast resources

Ghana can avail itself of.

To be contd.