ISLAMIC FINANCE IN ETHIOPIA: CURRENT STATUS, PROSPECTS AND CHALLENGES
Keywords:
Ethiopia, Islamic Finance, Interest-Free Banking Window, Full-Fledged.
Abstract
Ethiopia is a country found in the horn of Africa and notable in the Muslim world as the destination of the two migration of the companions of Prophet Muhammad (PBUH). Ethiopia has a Muslim population expected to be around 50 million. Unfortunately, with this significant Muslim population, it accommodates Islamic finance in its conventional financial system lately. This study aims to investigate the current status, prospects, and challenges of Islamic finance in Ethiopia. For these reasons, different secondary data were collected and analyzed. The result of the study indicated that Islamic finance in Ethiopia is representing by three financial institutions such as Islamic banks, Islamic Insurance and Islamic microfinance. Islamic banking is providing through the Interest-free banking window and fully-fledged forms of interest-free banking. The interest-free banking window system is adopted by conventional banks, whereas Full-fledged Islamic Banks providing services using their own separate Sharia-compliant financial system. The result also indicated that high public demand, adequate capital for the establishment, availability of substantial customers, easy deposit mobilization and profitability are the foremost opportunities for Islamic finance in Ethiopia. Whereas, negative perception about Islamic finance, legal framework challenges such as restriction of investment and double taxation, and lack of skilled human resources are the main potential hindrances for the sector.
JEL Classification Codes: F65, G21, G22.
References
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Mohd Zamil, N. A. (2014). An empirical investigation into the problems and challenges facing Islamic banking in Malaysia. Cardiff University. (Doctoral dissertation, Cardiff University).
Nagaoka, S. (2012). Critical overview of the history of Islamic economics: formation, transformation, and new horizons. Asian and African area studies, 11(2), 114-136.
Nyazee, I. A. K. (2016). Outlines of Islamic jurisprudence (6th ed.) Advanced Legal Studies Institute. Islamabad, Pakistan.
Obaidullah, M. (2005). Islamic financial services. Jeddah: King Abdulaziz University Press. Saudi Arabia.
Obaidullah, M., (2008). Introduction to Islamic Microfinance. New Delhi: International Institute of Islamic Business and Finance.
Ökte, M. (2010). Fundamentals of Islamic economy and finance: theory and practice. Electronic Journal of Social Sciences, 9(31), 180-208.
Pasha, A. T., & Hussain, M. M. (2013). Takaful Business Models: A Review, a Comparison. Business Management Dynamics, 3(4), 24-32.
Philips, A. A. B. (2006). The Evolution of Fiqh: Islamic Law and The Madhhabs. Riyad: International Islamic Publishing House.
Sefiani, Z., (2014). Policy Analysis on Ethiopia Interest Free Banking (IFB) Directive. Prepared for Mercy Corps.
Shanmugam, B., & Zahari, Z. R. (2009). A primer on Islamic finance. The Research Foundation of CFA Institute.
Sole, J. A. (2007). Introducing Islamic banks into conventional banking systems. IMF Working Paper, WP/07/175.
Swartz, N. P., & Coetzer, P. (2010). Takaful: An Islamic insurance instrument. Journal of Development and Agricultural Economics, 2(10), 333-339.
Tiby, E., Mohamed, A., & Grais, W. (2015). Islamic Finance and Economic Development: Risk Management, Regulation, and Corporate Governance. John Wiley and Sons.
Uddin, M. A. (2015). Principles of Islamic Finance: Prohibition of Riba, Gharar and Maysir.MPRA Paper No. 67711.
Zamzam Bank (2012). Zamzam bank under formation work report. Addis Ababa.
Abedifar, P., Ebrahim, S. M., Molyneux, P., & Tarazi, A. (2015). Islamic banking and finance: Recent empirical literature and directions for future research. Journal of Economic Surveys, 29(4), 637-670.
Afzal-ur-Rahman, M. A. (1974). Economic Doctrines of Islam. Islamic Publication. Lahore, Pakistan.
Agoston, G., & Masters, B. (2009). Encyclopedia of the Ottoman Empire. Facts on File, Inc. An imprint of InfoBase Publishing. New York.
Alam, N., Gupta, L., & Shanmugam, B. (2017). Islamic finance: A practical perspective. Springer.
Alharbi, A., (2015). Development of the Islamic Banking System. Journal of Islamic Banking and Finance, 3(1), 12-25.
Al-Hashimi, M., A., 2012: Ethiopian Muslims and the Ahbash controversy. Retrieved from https://crescent.icit-digital.org/articles/ethiopian-muslims-and-theahbash-controversy
Ali, A. S. (2020). Islamic micro finance services in Ethiopia: performances and implications for financial inclusion and poverty alleviation. International Journal of Commerce and Finance, 6(2), 159-169.
Ali, A. S., Bushera, I., & Yesuf, A. J. (2020). The potential of Islamic financial institutions in promoting small and medium enterprises (SMEs) in Ethiopia. Journal of Economics and Political Economy, 7(3), 188-203.
Aman, A. (2019). Interest free window banking and finance in Ethiopia: inception to expansion. Journal of economic library, 6(4), 1-14.
Aman, A. W., Ali, A. S., & Yesuf, A. J. (2021). The potential critical success factors of full-fledged interest-free banks in Ethiopia. Journal of Economics Bibliography, 7(4), 211-230.
Auda, J. (2008). Maqasid al-Shariah as philosophy of Islamic law: a systems approach. International Institute of Islamic Thought (IIIT).
Ayub, M. (2007). Understanding Islamic finance. John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester.
Belayneh, Z. (2020). Opportunities and challenges of Islamic Banking Establishment in Ethiopia. Unpublished master’s thesis, St. Mary’s University, Ethiopia, Addis Ababa.
Chachi, A. (2005). Origin and development of commercial and Islamic banking operations. Journal of King Abdulaziz University: Islamic Economics, 18(2).
Demirgüç-Kunt, A., Leora K., Dorothe S., Saniya A., & Jake H. (2018). The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution. World Bank: Washington, DC.
Dhaoui, E. (2015). The role of Islamic Microfinance in Poverty Alleviation: Lessons from Bangladesh Experience. Tunisan Institute for Competitiveness and Quantitative Studies: MPRA Paper No. 63665.
Feyissa, D. (2012). The transnational politics of the Ethiopian Muslim diaspora. Ethnic and Racial Studies, 35(11), 1893-1913.
Getachew, A. & Kedir, S. (2019, May). Ethiopian PM attends iftar with Muslim community: Abiy Ahmed promises grand mosque, interest-free banking for Muslims. Anadolu Agency. Retrieved from https://www.aa.com.tr/en/africa/ethiopianpm-attends-iftar-with-muslim-community/1484949
Gill, P., Stewart, K., Treasure, E., & Chadwick, B. (2008). Methods of data collection in qualitative research: interviews and focus groups. British dental journal, 204(6), 291-295.
Global Islamic Finance Report -GIFR (2020). An overview of the global Islamic financial services industry.
Hailu, S. M., & Bushera, I. (2020). Interest Free Banking in Ethiopia: Prospects and Challenges. International Journal of Islamic Economics and Finance Studies, 6(2), 119-137.
Hailu, S. M., Kapusuzoglu, A., & Ceylan, N. B. (2019). The Role of Islamic Financial Product Innovation in Reduction of Financial Exclusion in Ethiopia. In Handbook of Research on Managerial Thinking in Global Business Economics (pp. 426-446). IGI Global.
Htay, S. N. N., & Zaharin, H. R. (2012). Critical Analysis on the Choice of Takaful (Islamic Insurance) Operating Models in Malaysia. World Journal of Social Sciences, 2(2), 112-127.
Iqbal, M., Aḥmad, A., & Khan, T. (1998). Challenges facing Islamic banking (Vol. 1). Jeddah: Islamic Research and Training Institute.
Iqbal, Z., & Mirakhor, A. (2011). An introduction to Islamic finance: Theory and practice (Vol. 687). John Wiley & Sons.
Islahi, A. A. (2007). Thirty years of research in the history of Islamic economic thought: Assessment and future directions. Islamic Economics Research Center, Jeddah.MPRA Paper No. 18102, pp. 347-370.
Islamic Financial Services Board -IFSB (2020). Islamic Financial Services Industry Stability Report. Kuala Lumpur, Malaysia, July.
Karbhari, Y., Naser, K., & Shahin, Z. (2004). Problems and challenges facing the Islamic banking system in the west: The case of the UK. Thunderbird International Business Review, 46(5), 521-543.
Karimi, A. J. (2007). Challenges facing Islamic banks. Dawn Media Group.
Malaysia International Islamic Finance Center –MIFC. (2015). Islamic Finance: Prospects and Challenges. Retrieved from https://www.mifc.com/index.php?ch=28&pg=72&ac=139&bb=uploadpdf
Mohamad, M. T., Abdullah, M. Y., Mohamad, M. A., & Abidin, U. Z. A. A. Z. (2013). The historical development of modern Islamic banking: A study in South-east Asia countries. African Journal of Business Management, 1(1), 1-14.
Mohd Zamil, N. A. (2014). An empirical investigation into the problems and challenges facing Islamic banking in Malaysia. Cardiff University. (Doctoral dissertation, Cardiff University).
Nagaoka, S. (2012). Critical overview of the history of Islamic economics: formation, transformation, and new horizons. Asian and African area studies, 11(2), 114-136.
Nyazee, I. A. K. (2016). Outlines of Islamic jurisprudence (6th ed.) Advanced Legal Studies Institute. Islamabad, Pakistan.
Obaidullah, M. (2005). Islamic financial services. Jeddah: King Abdulaziz University Press. Saudi Arabia.
Obaidullah, M., (2008). Introduction to Islamic Microfinance. New Delhi: International Institute of Islamic Business and Finance.
Ökte, M. (2010). Fundamentals of Islamic economy and finance: theory and practice. Electronic Journal of Social Sciences, 9(31), 180-208.
Pasha, A. T., & Hussain, M. M. (2013). Takaful Business Models: A Review, a Comparison. Business Management Dynamics, 3(4), 24-32.
Philips, A. A. B. (2006). The Evolution of Fiqh: Islamic Law and The Madhhabs. Riyad: International Islamic Publishing House.
Sefiani, Z., (2014). Policy Analysis on Ethiopia Interest Free Banking (IFB) Directive. Prepared for Mercy Corps.
Shanmugam, B., & Zahari, Z. R. (2009). A primer on Islamic finance. The Research Foundation of CFA Institute.
Sole, J. A. (2007). Introducing Islamic banks into conventional banking systems. IMF Working Paper, WP/07/175.
Swartz, N. P., & Coetzer, P. (2010). Takaful: An Islamic insurance instrument. Journal of Development and Agricultural Economics, 2(10), 333-339.
Tiby, E., Mohamed, A., & Grais, W. (2015). Islamic Finance and Economic Development: Risk Management, Regulation, and Corporate Governance. John Wiley and Sons.
Uddin, M. A. (2015). Principles of Islamic Finance: Prohibition of Riba, Gharar and Maysir.MPRA Paper No. 67711.
Zamzam Bank (2012). Zamzam bank under formation work report. Addis Ababa.
Published
2021-08-30
How to Cite
Hailu, S. M., & Yatoo, N. A. (2021). ISLAMIC FINANCE IN ETHIOPIA: CURRENT STATUS, PROSPECTS AND CHALLENGES. International Journal of Islamic Banking and Finance Research, 6(1), 1-18. https://doi.org/10.46281/ijibfr.v6i1.1317
Section
Original Articles/Short Communications
Copyright (c) 2021 Suadiq Mehammed Hailu, Nissar Ahmad Yatoo
This work is licensed under a Creative Commons Attribution 4.0 International License.
