Factors Affecting Implementation of Interest Free Banking Services in Ethiopia: The Mediating Role of Customer Involvement

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Addis Ababa University


Purpose – The purpose of this paper is to investigate major factors affecting the implementation of Interest free banking services among customers in recognizing factors that need consideration in implimenting IFB service in Commercial Bank of Ethiopia, Addis Ababa, Ethiopia. Design/methodology/approach- The research used innovation diffusion theory to investigate factors affecting implimenation of IFB services in doing so it integrates customer involvement and religious belifs modifying Rogers Model to investigate its effect robustly. Both primery and secondary data were used. Simple random sampling was used to solicit response from selected 366 respondents. The study used standardized questionnaire on selected branches of CBE in Addis Ababa, Ethiopia. The study employed exploratory and confirmatory factor analyses. An exploratory factor analysis was conducted using principal component analysis while confirmatory factor analysis was conducted using structural equation modeling techniques that fulfills measurement construct validity (both convergent and discriminant validity) and reliability through AMOS version 23 software. Findings- Results showed that, except relative advantage, all the other variables: Awareness, compatibility, complexity, observability, perceived risk, religious beliefs and customer involvement were significant on the implementation of IFB services. Moreover, the finding indicated customer involvemet mediates the relationship between compatibility, complexity and perceived risk on implementation of IFB service. On the other hand, religious belifs moderates the relationshipship between compatibility, complexity, observability and perceived risk on implementation of IFB service. Research limitations/implications - The study area was limited to Addis Ababa districts of CBE. Thus the results from this case might not be generalized to customers of other banks and to customers of CBE out of Addis Ababa districts. Furthermore, this study could not observe variable extensively due to the short tenure of the services implimentation which makes it difficult to get adequate references that has similar scope in the subject. Social implications- This Study suggested the importance for bank providers to understand factors influencing implementation of IFB service, customers’ preference and view from the customers’ perspective, in order to attract and retain customers, as well as leop forward. Originality/value- Upon validating the framework, findings from the study provides useful insight and especially first hand information on the role of customer involvement. That would be useful to the providers in gaining and retaining the existing customer, and to the policy makers, regulators and other relevant stakeholders to strategize inaccordance with their respective roles towards development and sustainment of the industry.



Customer involvement, IDT, IFB