Analysis of Ghana’s Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930): Readiness for non-interest banking and finance

Ghana’s financial sector has under­gone significant transformation over the past two decades, driven by regulatory reforms aimed at promot­ing stability, inclusivity, and inno­vation. The Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) stands as a cornerstone of this regulatory framework, providing a comprehensive basis for the licensing, regulation, and supervision of banks and other deposit-taking institutions. As interest in non-interest (Islamic) banking grows—both globally and with the recent pronouncements from the President of the Republic—there is a need to examine whether Act 930 is equipped to facilitate the intro­duction and growth of non-interest banking and finance. This article dis­cusses the Act’s provisions, strengths, limitations, and the steps needed to ensure Ghana’s readiness for a robust non-interest banking sector.

Background: The Rise of Non-In­terest Banking

Non-interest banking, often referred to as Islamic banking, operates on principles that prohibit the charging or payment of interest (riba) and emphasise risk-sharing, as­set-backed lending, and ethical invest­ments. Instead of traditional lending, non-interest banks use contracts such as Mudarabah (profit-sharing), Mura­baha (cost-plus financing), and Ijarah (leasing). These models will appeal to most people in Ghana, whether Mus­lim or non-Muslim, who seek ethical and alternative financial products. The global Islamic finance industry has surpassed $3 trillion in assets, signal­ling its potential for financial inclusion and economic development. Ghana needs to position itself to participate in this growing market.

Overview of Act 930:

Structure and Purpose

The Banks and Specialised Depos­it-Taking Institutions Act, 2016 (Act 930) was enacted to consolidate and modernise Ghana’s banking laws, replacing the Banking Act, 2004 (Act 673). Its primary objectives include:

• Ensuring the soundness and stability of the financial system

• Protecting depositors’ inter­ests

• Promoting effective gover­nance and risk management

• Providing a framework for the licensing and regulation of a wide range of deposit-taking institutions

Act 930 covers universal banks, rural and community banks, savings and loans companies, finance houses, and other Specialised Deposit-taking Institutions (SDIs). The Act em­powers the Bank of Ghana (BoG) as the principal regulator, granting it broad discretion to issue directives, set prudential standards, and enforce compliance with these standards.

Regulatory Flexibility for Special­ised Institutions

One of the Act’s most notable features is its flexible approach to licensing and regulating SDIs. Under Section 4, the BoG may grant licenses to institutions with specialised man­dates, provided they meet prescribed criteria. This flexibility is crucial for introducing non-interest banking models, which often require unique operational structures and compliance frameworks.

Key strengths in this

regard include:

1. Broad Permissible Activi­ties: The Act generalises permissible activities for SDIs, allowing for a wide range of financial services, includ­ing those based on profit-sharing and asset-backing. This opens the door for non-interest banks to offer Sharia-compliant products, subject to approval by the Bank of Ghana (BoG).

2. Customizable Licensing Conditions: BoG is empowered to impose specific licensing conditions, including requirements for Sharia gov­ernance, product approval, and risk management tailored to non-interest banking.

3. Prohibition of Speculative Activities: The Act indirectly prohibits gambling and other speculative ventures, aligning with Islamic finance principles that discourage excessive uncertainty (gharar) and speculation (maysir).

Capital, Governance, and Pruden­tial Requirements

Sound governance and financial integrity are central to both conven­tional and non-interest banking. Act 930 establishes robust standards in these areas:

• Fit-and-Proper Test: Direc­tors and key management personnel must meet fit-and-proper criteria, ensuring they conduct themselves ethically and possess the necessary competence. This is especially relevant for non-interest banks, where Sharia compliance and ethical oversight are of paramount importance.

• Capital Adequacy: The Act sets minimum capital requirements and mandates the maintenance of adequate liquidity and solvency ratios. These prudential standards are com­patible with the asset-backed nature of Islamic finance, which typically avoids excessive leverage.

• Risk Exposure Limits: The Act limits significant exposures (e.g., a maximum of 25% of net own funds to a single counterparty), reduc­ing systemic risk and encouraging diversification—principles consistent with Islamic finance’s emphasis on risk-sharing.

Supervisory Powers and

Regulatory Discretion

The Act grants the BoG extensive supervisory powers, including the authority to:

• Issue binding directives and guidelines

• Approve or reject new products and services

• Conduct on-site and off-site inspections

• Enforce remedial actions and sanctions for non-compliance

This regulatory discretion is critical for effectively supervising non-inter­est banks, which may require special­ised oversight mechanisms, such as Sharia compliance audits and product certification.

Gaps and Challenges for

Non-Interest Banking

Despite its strengths, Act 930 does not explicitly address the unique requirements of non-interest banking. Key gaps include:

1. Absence of Sharia Governance Framework

Non-interest banks typically require a Sharia Supervisory Board (SSB) to ensure their products and operations comply with Islamic law. Act 930 does not mandate the establishment of such boards or provide for the recog­nition or regulation of SSBs. Without explicit legal backing, the legitimacy and effectiveness of Sharia gover­nance could be undermined.

Recommendation: The BoG should issue supplementary regulations or guidelines under Section 92 (Direc­tives) to require non-interest banks to establish SSBs, define their roles, and set standards for independence and expertise.

2. Lack of Product-Specific Legal Recognition

Islamic finance relies on contracts such as Mudarabah, Murabaha, and Ijarah, which differ from conventional loan agreements in their structure and terms. Act 930’s definition of permis­sible activities is broad; however, the law does not explicitly recognise these contracts. This could create uncer­tainty regarding their enforceability in Ghanaian courts.

Recommendation: Amendments to the Act or its schedules could explic­itly recognise standard Islamic finance contracts, providing legal certainty and facilitating product innovation.

3. Liquidity Management Tools

Non-interest banks cannot par­ticipate in conventional interbank markets or use interest-based liquidity instruments. Act 930 does not provide for the development or approval of Sharia-compliant liquidity manage­ment tools, such as Sukuk (Islamic bonds) or commodity Murabaha.

Recommendation: The BoG, utilis­ing its regulatory powers, should de­velop and approve Sharia-compliant liquidity instruments and establish an Islamic interbank market to support the liquidity needs of non-interest banks.

4. Tax and Accounting Treat­ment

Islamic finance transactions often involve multiple contracts and asset transfers, resulting in higher tax and accounting burdens than conventional loans. Act 930 does not address these issues, potentially disadvantaging non-interest banks.

Recommendation: Collaboration between the BoG, Ghana Revenue Authority, and the Institute of Char­tered Accountants, Ghana, should produce harmonised tax and account­ing guidelines for Islamic finance transactions.

5. Purification of Funds

Cleansing or purifying income and investments from any elements that are not compliant with the funda­mental principles of Non-Interest Finance, such as: Interest (riba) Income from gambling, alcohol, or other prohibited industries.

Recommendation: Regu­lations should include a provision outlining the treatment of impure funds in line with international best practices.

International Comparisons and Best Practices

Countries such as Malaysia, the United Kingdom, and Nigeria have successfully integrated non-inter­est banking by enacting enabling legislation, issuing detailed regulatory guidelines, and fostering collaboration between regulators, industry, and Sha­ria scholars. Key lessons include:

• Legal Clarity: Explicit rec­ognition of Islamic finance contracts and Sharia governance structures in primary legislation.

• Regulatory Support: Central banks are active in product approval, capacity building, and market devel­opment.

• Market Infrastructure: De­velopment of Islamic interbank mar­kets, liquidity management tools, and deposit insurance schemes tailored to non-interest banks.

Ghana can draw on these ex­periences to enhance its legal and regulatory frameworks. These legal systems adhere to the common law framework, ensuring a level playing field for all financial institutions.

Opportunities and Implications for Ghana

The introduction of non-interest banking offers several potential bene­fits for Ghana:

• Financial Inclusion: Non-interest banking can attract unbanked populations

• Diversification: A more diverse financial sector can enhance stability and resilience.

• Ethical Finance: Non-in­terest banking’s emphasis on social responsibility and ethical investment aligns with Ghana’s development goals.

However, realising these benefits requires a supportive legal and regula­tory environment, adequate supervi­sion, and stakeholder engagement.

Conclusion: Pathways to Readiness

The Banks and Specialised Depos­it-Taking Institutions Act, 2016 (Act 930) provides a solid foundation for regulating Ghana’s financial sector, with sufficient flexibility to accommo­date non-interest banking models. Its broad licensing framework, prudential standards, and regulatory discretion empower the BoG to facilitate the en­try and growth of non-interest banks. However, targeted reforms are nec­essary to address gaps in Sharia gover­nance, product recognition, liquidity management, and tax treatment.

By amending the Act and issuing supplementary regulations, Ghana can lead in inclusive and Innovative finance, unlocking new opportuni­ties for economic development and social progress. The readiness for non-interest banking is within reach if policymakers, regulators, and industry stakeholders work collaboratively to create a robust and enabling environ­ment for all.

The author, Yusif Geoffrey, a chartered accountant and a fellow at the Islamic Finance Research Institute of Ghana (IFRIG), has advocated the introduction of non-interest banking and finance in Ghana. Through its tireless efforts, IFRIG highlights the benefits of a more equitable and sus­tainable financial system that shares risk and rewards, promoting financial inclusion. As Ghana takes steps to introduce the Non-Interest Banking and Finance industry & products, IFRIG’s research and advocacy will play a crucial role in shaping the country’s financial future. IFRIG is poised to impact Ghana’s economy and contribute to a more prosperous and financially stable future for all.

The writer is a Chartered Ac­countant

ACCA, ICAG, CIFE, MSc

Papayusif@gmail.com

0243321554

BY YUSIF GEOFFREY