Operational Challenges and Opportunities of Interest Free Banking in Ethiopia
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Date
2018-03
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Addis Ababa University
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.
Description
A thesis submitted to the school of graduate studies of Addis Ababa
University in partial fulfillment of the requirements for the
Degree of Master of Science in accounting and finance
Keywords
Interest free banking, Islamic finance, Operational challenges of IFB