ASSESSMENT OF ISLAMIC (INTEREST FREE BANKING) PROSPECTS, OPPORTUNITY AND CHALLENGES IN ETHIOPIA IN THE CASE OF COMMERCIAL BANK OF ETHIOPIA, WEST ADDIS DISTRICT

Abstract

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, and widely held long standing 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. In Ethiopian there is potential customer and Ethiopian Investment framework is favorable also for investors, so this creates favorable condition for the development of IFB. On the other side, the challenges to deliver IFB services as: lack of Sharia advisor, lack of supportive regulatory directives, lack of awareness of customer about IFB products and absence of equity markets. On the other hand, unavailability of IFB service in all branches, unequal treatment of debt and equity and double taxation and lack of trust with in the bank are the main challenges customer face to utilize the products. Accordingly, the following recommendations were forwarded by the researcher based on the results of the findings in conjunction with literature review reflections: aggressive promotion and marketing campaign about IFB products, provide sustainable and continuous training to build the capacity of the manpower, the bank shall increase accessibility of its products with in all branches, the bank has to have Sharia advisor, the bank should give the required attention and focus for the business and the bank has to be transparent in its IFB business undertaking, in addition government should prepare compatible regulatory framework.