Introdudicing Policy and Regulatory Framework for Accomodation of Islamic Banking in Ethiopia
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Date
2020
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Addis Ababa
Abstract
The accommodation of Islamic banking has to be accompanied by the development of efficient
and effective Policy, regulatory and supervisory framework. Historically, Islamic banks operated
under the conventional setup, but with the expansion of the Islamic banking industry, countries
have adopted separate regulatory structures based on their institutional setup and market
dynamics. This segregation of regulatory frameworks establishes the need for separate
governance structures, given that the socially responsible objectives and operational efficiency of
Islamic banking cannot be achieved under conventional setups. International agreements such as
the Basel core principles which aim to provide level-playing field regulations for all banks, in
fact, do not take into account the nature of the Islamic banking, hence IFSB standards,
Guidelines and core principles were established to compliment the lack of level playing field
regulations in BCPs. The countries which accommodate Islamic banking are also adopting these
adjusted standards while developing their regulatory framework.
This research paper examines the exiting Ethiopian policy, regulatory and supervisory
framework for Islamic banking by taking in to account the international standards and countries
experiences. The core purpose of the study is to identify and disclose major policy, regulatory
and supervisory gaps, loopholes and challenges. The study was conducted mainly based on
regulatory and supervisory analysis, interview and benchmarking international experiences. The
findings of the study revealed that yet the country did not yet develop the regulatory, supervisory
and institutional framework that enable Islamic banking to operate on a level playing field.
Based on the result of the study, this paper opted to introduce appropriate policy, regulatory and
supervisory framework for the industry. Having this in mind, it focuses on the proposals and
possible recommendations.