Islamic Banking: Prospects, Opportunities and Challenges in Ethiopia
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Date
2012-06
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Addis Ababa University
Abstract
While Sharia compliant investment avenues are now becoming available in most countries, in Ethiopia, most of the developments1 of Islamic finance have taken place in the last four years2.
This study presents new evidence on awareness, prospects, challenges and opportunities of Islamic banking in Ethiopia that are actually consistent with what Islamic Banking literature has revealed about the operations of Islamic banking elsewhere. To do so, descriptive research design of cross-sectional survey method which is be observational in its nature is used to realize the objectives of the study.
To be specific, the analysis suggests that there is low level of awareness about the operations of Islamic banking while respondents with different background has shown statistically significant variance in terms of awareness, gross misunderstanding and widely held long standing misconceptions about Islamic banking operations.
In addition, respondent’s prospects assessment score with regard to the operations of Islamic banking is high and higher than average expected score while respondents with different background has shown significant variance in terms of their assessment.
Moreover, lack of awareness, regulatory and supervisory challenges, institutional challenges, lack of support and link institutions, gap in research and development in Islamic studies as, lack of qualified human resource as well as wrongful association with specific religion and the global terrorism movements in recent times has been reported as one of the major problems facing Islamic banking in Ethiopia.
Key Words: Islamic banking, awareness, understanding, prospects, challenges
1 However, limited, simple, uncomplicated and relatively uncompetitive products offered by few commercial banks, did not, cater for the wider Muslim consumers and the existence of full set of Sharia-compliant financial products in the Ethiopian financial industry is yet something to be seenI.e the Special Demand Deposit offered by the commercial bank of Ethiopia (CBE) and the Amanah (or Safe-
2 After the 2008 „Banking Regulation and Supervision Proclamation‟ has been passed. National Bank of Ethiopia (NBE) has only allowed for the “Existing banks‟ to provide „interest-free banking windows‟ while killing the long awaited hope for full-fledged Islamic banking.
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Islamic banking, awareness, understanding, prospects, challenges