Ghana is finally entering an easing cycle of high interest rates. On 30 July 2025, the Bank of Ghana (BoG) cut the Monetary Policy Rate by 300 basis points to 25.0% and signalled room for further easing if disinflation continues. This decision capped months of improving macro readings and marked a turning point from the aggressive tightening used to quellprice pressures sometime back. The cut has already begun to cascade through the pricing of credit, setting the scene for a structural reset in lending and funding models across the financial sector and the banking sector in particular.
Transmission into lending conditions is visible in two areas. First, BoG’s summary data shows that the Average Lending Rate has fallen from 31.6% at the start of 2025 to 27.0% by June, its lowest in roughly two years, while the policy stance was still only gradually softening. Second, the Ghana Association of Banks (GAB) on August 6, 2025, also confirmed or announced a huge cut in the Ghana Reference Rate (GRR) from 23.69% to 19.67%. As we know, the GRR is the most important benchmark used by banks to re-priceloans, implying cheaper credit facilities going forward.
Despite these positive developments, the credit system is still fragile and face challenges, especially in the area 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 around 20% in late 2024, even as inflation has trended downward and growth normalised. This reflects the lagged scarring from the macro adjustment, the Domestic Debt Exchange, as well as cash-flow stress among SMEs that faced very high borrowing costs. Lower rates should reduce new NPLs, simply because of debt service burdens ease. However, existing NPL stocksstill require better discipline and workout tools to normalise. This is precisely where Islamic banking can add real and system-level value.
Islamic Banking in Focus
The core of Islamic finance is the replacement of interest-based lending with asset-based or risk-sharing contracts such as murābaḥah (cost-plus sale), ijārah (lease), mushārakah (joint venture) and muḍārabah (profit-loss sharing). Because financing is either tied to real assets or structured as shared enterprise risk, funds are harder to divert and the financier’s returns are explicitly linked to the success of the underlying activity. Global policy work by the IMF and the Islamic Financial Services Board (IFSB) has repeatedly highlighted how these structural features combined with strong Shariah governance can support financial stability, improve inclusion, and diversify funding channels when implemented under robust regulation.
Opportunity for Bank Brands in Ghana
The Ghanaian opportunity is timely for two reasons. First, demand exists. At least, nearly one in five Ghanaians identifies as Muslim, and surveys consistently show broader interest in ethical, transparent finance among non-Muslim customers as well. A credible Islamic financing window or full-fledged Islamic banking will open sizeable new deposit and lending franchise, particularly among retail customers, traders, and SMEs that prefer asset-linked financing over conventional cash loans.
Second, the regulatory groundwork is advancing. Public statements from the BoG in 2025 indicate that, once the necessary supervisory and legal structures are in place, the Bank will consider licensing institutions to operate as Islamic banks or to offer Shariah-compliant financing windows. That stance has been reinforced in local policy discussions throughout the year.
Islamic Banking and NPLs
How could Islamic banking help Ghana address the twin challenges of high NPLs and historically expensive credit even as rates fall? Start with origination quality. Asset-backed contracts require clear identification of goods, services or productive assets being financed; they often entail the financier’s temporary ownership or beneficial title. This design builds “use-of-proceeds discipline” directly into the product, reducing misapplication of loan funds, a common driver of delinquencies in SME books.
Profit-loss sharing instruments, while used more selectively, align borrower and financier incentives by linking returns to project outcomes, which reduces the temptation to over-leverage. Cross-country evidence suggests that, under stress, portfolios structured on Islamic principles can exhibit comparable or at times better asset-quality dynamics than conventional peers, provided that governance and risk management are of high quality. Those lessons are relevant for Ghana as the system works down a 23.1% NPL ratio.
Pricing: Although Islamic finance prohibits riba (interest), Ghanaian Islamic products will still need transparent benchmarks to ensure fairness and competitiveness in a dual system. In practice, banks in many markets index murābaḥahprofit rates and ijārah rentals to an accepted reference rate.
In Ghana, the GRR already provides a transparent, formula-based benchmark that has dropped from the high-20s early in 2025 to 19.67% in August. That decline gives Islamic financiers immediate room to price more affordable asset-backed facilities while preserving margins. As reference rates settle lower alongside policy easing, the affordability gains for working-capital trade finance, equipment leasing and inventory purchases could be substantial, especially for SMEs that were previously priced out of the market.
Working practices: Workout practices also differ in ways that matter for Ghana’s NPL overhang. Islamic contracts typically restrain compounding of penalties on overdue amounts; any late-payment charges are generally meant to cover actual costs and, in many standards, are channelled to charity rather than to the financier’s income. That removes a mechanical driver of balance-sheet bloat during delinquency and supports faster, more constructive restructurings.
More importantly, because the financier’s claim is tied to an identifiable asset or enterprise, restructurings can use tools like sale-and-lease-back or step-in management to preserve going-concern value rather than forcing distressed, value-destroying fire sales. These features do not make Islamic credit risk-free, but they do broaden the toolkit for dealing with stress in a way that is aligned with Ghana’s current clean-up needs.
Decisive regulation: The IMF and IFSB emphasise that Islamic banking must sit inside a dedicated prudential framework, including Shariah governance, tailored capital and liquidity rules, and resolution and deposit-insurance arrangements that reflect the specific risk profile of Islamic contracts. Ghana’s supervisors can leverage the Core Principles for Islamic Finance Regulation (CPIFR), already recognised by the IMF for FSAP assessments, to build a regime that integrates seamlessly with the existing Basel-aligned rulebook. Clear standards will keep the playing field level, protect consumers and ensure that the risk-sharing promise translates into real-economy benefits rather than regulatory arbitrage.
Early adopters and first-mover status
For brands or banks that incorporate the Islamic banking principles are likely to gain the first-mover advantage, thus increasing their market share, de-risking credit administration, and perhaps reducing or eliminating NPLs. With the policy rate at 25% and the GRR below 20%, margins can be protected while offering customers significantly better all-in pricing than during the tightening cycle.
Islamic products naturally lend themselves to the sectors that drive Ghana’s jobs: trade, agriculture, transport and light manufacturing, because they finance tangible inventories and equipment rather than abstract cash needs.
In deposit-gathering, Shariah-compliant current and investment accounts can mobilise savings from households and businesses that have remained under-banked for religious or ethical reasons, widening the funding base and lowering cost of funds. Over time, as inflation and rates normalise further, an Islamic capital-markets layer, particularly sukukissued by well-rated corporations could deepen cedi funding options and diversify away from bank balance sheets.
Therefore, bank brands that invest now in capabilities, governance, and product designs are likely to enjoy both first-mover brand effects and increase market shares when the framework for Islamic Banking is completed and implemented.
The Execution Challenge
It is however worth noting that there exists the execution challenge. Banks will need credible Shariah boards, upgraded product-control and legal documentation, systems that can handle asset-based accruals, and staff who understand both the jurisprudence and the economics of the contracts they are selling. Nonetheless, the timing could hardly be better: credit is becoming affordable again, the system needs fresh approaches to origination discipline and workouts, and the regulator has signalled openness to Islamic intermediation once the framework is in place.
About the Writer
Mohammed Ali is a Brand Advocate and Head of Marketing & Communications, Agricultural Development Bank PLC.
