Challenges and Prospects of Interest-Free Banking Services in Ethiopia: The Case of Hijra Bank
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Date
2025-06-12
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A.A.U
Abstract
This study explores the challenges and prospects of interest-free banking services in Ethiopia, with a particular focus on Hijra Bank. Adopting a qualitative approach complemented by descriptive research design and mixed methods, data were collected from 384 respondents,
including both bank employees and customers. The research utilized primary and secondary sources to examine the operational, regulatory, and financial dimensions of Islamic banking in the Hijra Bank. Findings reveal increasing public acceptance of Islamic banking, primarily driven by the growing demand for Sharia-compliant financial products and the sector’s potential
to foster financial inclusion. However, the study identified several systemic challenges, including underdeveloped regulatory frameworks, limited skilled human capital, inadequate technological integration, and widespread public misunderstanding of Islamic finance principles. Secondary
data analysis from 2022 to 2024 highlighted substantial growth for Hijra Bank across key performance indicators total assets, interest-free deposits, customer base, and profitability. The bank’s transition from net losses in 2022 to a net profit by 2024 reflects improved operational efficiency, strong public trust, and the rising viability of Islamic banking in Ethiopia. Despite
early operational hurdles, the study concludes that the outlook for interest-free banking in Hijra Bank is optimistic. Realizing this potential will require concerted efforts in regulatory reform, workforce capacity building, digital transformation, financial product innovation, and enhanced
public awareness. Strategic collaboration among policymakers, financial institutions, and community stakeholders is essential to foster sustainable growth and competitiveness in Ethiopia’s Islamic banking sector.
Key words: Islamic banking, interest-free banking, Hijra Bank, Ethiopia