Challenges of Interest Free Banking Window in Ethiopia: The Case of Dashen Bank S.C.
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Date
2021-06
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Addis Ababa University
Abstract
The main goal of this study is to look at the challenges of interest-free banking in
Ethiopia. Interest-free banking was launched in Ethiopia as an alternative to the
banking industry within the existing conventional bank in window bases, and it
operates in accordance with Shari’ ah principles. However, lack of Shari’ ah
governance and dispute resolution system, cannibalization with conventional wing
and lack of ownership, core banking system limitation and segregation of IFB fund,
scramble in IFB marketing mix and product development have all hampered its
activities. The study employed qualitative methods of analysis, with primary data
collected through in depth interviews to test research objectives and respond to
research questions. To achieve the objectives of the study interviewees were drawn
from Dashen Bank S.C. Data was acquired via a semi structured in depth interview
and purposive sampling from a sample of 19 IFB employees, of whom 10 of them
interviewed. The results were examined using thematic analysis methods. The result
showed that lack of robust Shari’ ah governance framework is the major setback to
the operation of interest free banking, lack of ownership and commingling of funds
lagged the operations of Interest free banking; capacity limitation on core banking
system and loopholes in IFB organizational structure are also affected the growth of
IFB business. Some scrambles in product development and IFB marketing mix
(charging higher price than conventional price, weak distribution channel in case of
click & Mouse technology and, undiversified IFB products and absence of Shari’ ah
screening in IFB promotion) makes very limited provision for the operation of IFB in
Ethiopia; and these key findings show that a major setback to the operation of IFB in
Ethiopia found as institutional drawbacks. Weak and lack of supervisory framework,
entry of Full fledge IFB banks and expansion of IFB dedicate branches by other
banks, lack of institutional capacity are the major country level constraints found by
the study
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Keywords
Interest Free Banking, Sharia, Challenges