operational challenges and opportunities of interest free banking in Ethiopia

Abstract

The main objective of this study is to examine operational challenges and opportunities of interest free banking in Ethiopia. Interest free banking was introduced in Ethiopia as an alternative to the banking industries within the existing conventional bank in window bases, and strictly operates in line with the principles of Shari'ah. However, its operations have been constrained partly by, legal and regulation framework, misunderstanding and lack of standardization, limited market, and sharia experts and man power. The study used descriptive methods of analysis, Primary data was used by preparing questionnaires to test stated research hypotheses and to answer the research questions. To achieve the objectives of the study respondents were drawn from one government banks and four private commercial banks since they started IFB financing and saving service. Data was collected through questionnaire by using random sampling from a sample of 180 IFB staffs 126 were properly filled and returned the questionaries. The data collected from the questionnaire were analyzed using SPSS version 20 statistical tools such as percentages and frequency. The result showed that proper legal and regulatory framework is the major setback to the operation of interest free banking, lack of sheria experts and man power significantly lagged the operations of Interest free banking; limited market makes very limited provision for the operation of Islamic banking in Ethiopia; and these key findings show that a major setback to the operation of IFB in Ethiopia and above all, misunderstanding and lack of standardization of IFB concept are the major challenges of IFB operation in Ethiopia. Further the finding of the study showed that interest free banking is an effective mechanism to subjugate the liquidity and inflation problem. Thus, regulatory governance and banks should give more emphasis for the challenges that they face on the operation to have those mentioned opportunities and inclusive growths.