THE PROGRESS TO ALLOW FULLY FLEDGED INTEREST FREE BANKING BUSINESS IN ETHIOPIA

Abstract

Abstract-Islamic banking refers to banking business in which mobilizing or advancing funds is undertaken in a manner consistent with Islamic Sharia Law. Different literature shows the rapid growth of this Islamic banking as alternative to the conventional banking. Economic globalization, among other things, has led to the flourishment of Islamic banking both in Muslim and non-Muslim countries.\xa0 There has been increasingly strong public demand for interest free banking products in Ethiopia. As a response to this demand, the Ethiopian government introduced interest free banking business under Banking Business Proclamation No. 592/2008. Following this, the application to establish Fully Fledged Interest Free Banking Business was submitted to National Bank of Ethiopia. \xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0However, the prohibition by National Bank of Ethiopia for the same, following the enactment of “Directive to Authorize the Business of Interest Free Banking No.SBB/ 51/2011”, forced the withdrawal of the application. Now Ethiopia is being one of the largest Muslim populations in the Horn of Africa, however, has no Fully Fledged Interest Free Banking Business to provide service to the Muslim community. The enactment of Directive to License and Authorize Interest Free Banking Business No. SBB/72/2019, however, seems changed the situation. This directive allowed the establishment of Fully Fledged Interest Free Banking Business and following this directive, different banks of the same applied for the formation. Hence, the purpose of this Article is to analyze the evolution of Fully Fledged Interest Free Banking Business; to analyze the problem related with allowing Fully Fledged Interest Free Banking Business and to analyze the short coming of legal provision relating to Fully Fledged Interest Free Banking Business in Ethiopia.\xa0 The outcome of the analysis shows that the legal provision relating to Fully Fledged Interest Free Banking Business is not enough to deal with the same. It calls for the amendment of Banking Business Proclamation No. 592/2008 and the Directive to License and Authorize Interest Free Banking Business No. SBB/72/2019.The outcome also shows that the Authorization of more than one bank of the same at this early stage may bring failure both on the same and other conventional banks. Hence it calls to limit the number of Authorization for Fully Fledged Interest Free Banking Business at this early stage to not more than one. Keyword: Islamic banking, interest free banking, Islamic banking in Ethiopia.