Ghana is lastly coming into an easing cycle of excessive rates of interest. On 30 July 2025, the Financial institution of Ghana (BoG) minimize the Financial Coverage Charge by 300 foundation factors to 25.0% and signalled room for additional easing if disinflation continues. This choice capped months of enhancing macro readings and marked a turning level from the aggressive tightening used to quell worth pressures a while again. The minimize has already begun to cascade via the pricing of credit score, setting the scene for a structural reset in lending and funding fashions throughout the monetary sector and the banking sector particularly.
Transmission into lending situations is seen in two areas. First, BoG’s abstract information exhibits that the Common Lending Charge has fallen from 31.6% in the beginning of 2025 to 27.0% by June, its lowest in roughly two years, whereas the coverage stance was nonetheless solely step by step softening. Second, the Ghana Affiliation of Banks (GAB) on August 6, 2025, additionally confirmed or introduced an enormous minimize within the Ghana Reference Charge (GRR) from 23.69% to 19.67%. As we all know, the GRR is an important benchmark utilized by banks to re-price loans, implying cheaper credit score amenities going ahead.
Regardless of these optimistic developments, the credit score system remains to be fragile and faces challenges, particularly within the space of non-performing loans (NPLs). The BoG’s Banking Sector Indicators put the headline Non-Performing Loans (NPL) ratio at 23.1% in June 2025, up from round 20% in late 2024, whilst inflation has trended downward and progress normalised. This displays the lagged scarring from the macro adjustment, the Home Debt Alternate, in addition to cash-flow stress amongst SMEs that confronted very excessive borrowing prices. Decrease charges ought to cut back new NPLs, just because debt service burdens ease. Nonetheless, current NPL shares nonetheless require higher self-discipline and exercise instruments to normalise. That is exactly the place Islamic banking can add actual and system-level worth.
Islamic Banking in focus
The core of Islamic finance is the substitute of interest-based lending with asset-based or risk-sharing contracts comparable to murābaḥah (cost-plus sale), ijārah (lease), mushārakah (three way partnership) and muḍārabah (profit-loss sharing). As a result of financing is both tied to actual belongings or structured as shared enterprise danger, funds are tougher to divert, and the financier’s returns are explicitly linked to the success of the underlying exercise. International coverage work by the IMF and the Islamic Monetary Providers Board (IFSB) has repeatedly highlighted how these structural options, mixed with sturdy Shariah governance, can help monetary stability, enhance inclusion, and diversify funding channels when applied below sturdy regulation.
Alternative for Financial institution Manufacturers in Ghana
The Ghanaian alternative is well timed for 2 causes. First, demand exists. At the very least, practically one in 5 Ghanaians identifies as Muslim, and surveys persistently present broader curiosity in moral, clear finance amongst non-Muslim prospects as effectively. A reputable Islamic financing window or full-fledged Islamic banking will open sizeable new deposit and lending franchise, notably amongst retail prospects, merchants, and SMEs that desire asset-linked financing over typical money loans.
Second, the regulatory groundwork is advancing. Public statements from the BoG in 2025 point out that, as soon as the mandatory supervisory and authorized constructions are in place, the Financial institution will think about licensing establishments to function as Islamic banks or to supply Shariah-compliant financing home windows. That stance has been bolstered in native coverage discussions all year long.
Islamic Banking and NPLs
How might Islamic banking assist Ghana tackle the dual challenges of excessive NPLs and traditionally costly credit score, whilst charges fall? Begin with origination high quality. Asset-backed contracts require clear identification of products, companies or productive belongings being financed; they usually entail the financier’s non permanent possession or helpful title. This design builds “use-of-proceeds self-discipline” immediately into the product, lowering misapplication of mortgage funds, a standard driver of delinquencies in SME books.
Revenue-loss sharing devices, whereas used extra selectively, align borrower and financier incentives by linking returns to challenge outcomes, which reduces the temptation to over-leverage. Cross-country proof means that, below stress, portfolios structured on Islamic rules can exhibit comparable or at occasions higher asset-quality dynamics than typical friends, offered that governance and danger administration are of top quality. These classes are related for Ghana, because the system has a 23.1% NPL ratio.
Pricing: Though Islamic finance prohibits riba (curiosity), Ghanaian Islamic merchandise will nonetheless want clear benchmarks to make sure equity and competitiveness in a twin system. In observe, banks in lots of markets index murābaḥah revenue charges and ijārah leases to an accepted reference charge. In Ghana, the GRR already offers a clear, formula-based benchmark that has dropped from the high-20s early in 2025 to 19.67% in August. That decline provides Islamic financiers speedy room to cost extra reasonably priced asset-backed amenities whereas preserving margins. As reference charges settle decrease alongside coverage easing, the affordability beneficial properties for working-capital commerce finance, tools leasing and stock purchases could possibly be substantial, particularly for SMEs that have been beforehand priced out of the market.
Working practices: Exercise practices additionally differ in ways in which matter for Ghana’s NPL overhang. Islamic contracts sometimes restrain compounding of penalties on overdue quantities; any late-payment costs are typically meant to cowl precise prices and, in lots of requirements, are channelled to charity somewhat than to the financier’s earnings. That removes a mechanical driver of balance-sheet bloat throughout delinquency and helps sooner, extra constructive restructurings. Extra importantly, as a result of the financier’s declare is tied to an identifiable asset or enterprise, restructurings can use instruments like sale-and-lease-back or step-in administration to protect going-concern worth somewhat than forcing distressed, value-destroying fireplace gross sales. These options don’t make Islamic credit score risk-free, however they do broaden the toolkit for coping with stress in a method that’s aligned with Ghana’s present clean-up wants.
Decisive regulation: The IMF and IFSB emphasise that Islamic banking should sit inside a devoted prudential framework, together with Shariah governance, tailor-made capital and liquidity guidelines, and determination and deposit-insurance preparations that replicate the precise danger profile of Islamic contracts. Ghana’s supervisors can leverage the Core Ideas for Islamic Finance Regulation (CPIFR), already recognised by the IMF for FSAP assessments, to construct a regime that integrates seamlessly with the prevailing Basel-aligned rulebook. Clear requirements will maintain the enjoying discipline stage, shield shoppers and make sure that the risk-sharing promise interprets into real-economy advantages somewhat than regulatory arbitrage.
Early adopters and first-mover standing
Manufacturers or banks that incorporate the Islamic banking rules are prone to acquire the first-mover benefit, thus growing their market share, de-risking credit score administration, and maybe lowering or eliminating NPLs. With the coverage charge at 25% and the GRR beneath 20%, margins will be protected whereas providing prospects considerably higher all-in pricing than throughout the tightening cycle.
Islamic merchandise naturally lend themselves to the sectors that drive Ghana’s jobs: commerce, agriculture, transport and lightweight manufacturing, as a result of they finance tangible inventories and tools somewhat than summary money wants.
In deposit-gathering, Shariah-compliant present and funding accounts can mobilise financial savings from households and companies which have remained under-banked for spiritual or moral causes, widening the funding base and decreasing the price of funds. Over time, as inflation and charges normalise additional, an Islamic capital-markets layer, notably sukuk issued by well-rated firms, might deepen cedi funding choices and diversify away from financial institution stability sheets.
Subsequently, financial institution manufacturers that make investments now in capabilities, governance, and product designs are prone to take pleasure in each first-mover model results and improve market shares when the framework for Islamic Banking is accomplished and applied.
The Execution Problem
It’s, nonetheless, price noting that there exists an execution problem. Banks will want credible Shariah boards, upgraded product-control and authorized documentation, methods that may deal with asset-based accruals, and employees who perceive each the jurisprudence and the economics of the contracts they’re promoting. Nonetheless, the timing might hardly be higher: credit score is changing into reasonably priced once more, the system wants contemporary approaches to origination self-discipline and exercises, and the regulator has signalled openness to Islamic intermediation as soon as the framework is in place.
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Mohammed Ali is a Model Advocate and Head of Advertising and marketing & Communications, Agricultural Growth Financial institution PLC
DISCLAIMER: The Views, Feedback, Opinions, Contributions and Statements made by Readers and Contributors on this platform don’t essentially symbolize the views or coverage of Multimedia Group Restricted.
DISCLAIMER: The Views, Feedback, Opinions, Contributions and Statements made by Readers and Contributors on this platform don’t essentially symbolize the views or coverage of Multimedia Group Restricted.
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