List of interest free banks

Interest Free Banks

Interest free banking is currently one of the fastest-growing segments of global finance. Ethiopia, by comparison, is still relatively early in developing the sector. The country has one of the world’s largest Muslim populations, estimated at roughly 40 million people, or about a third of Ethiopia’s population, which points to strong underlying demand. Even so, interest-free banking is still gaining traction with the wider public. Interest-free banking services operate according to Sharia principles across all activities and offerings.

Commercial Bank of Ethiopia, the state-owned lender, was among the first banks in Ethiopia to launch an interest-free banking window, starting in 2013 — alongside Oromia Bank, which introduced the service the same year.

Interest free banking window services expanded through the early-to-mid 2010s and were gradually adopted by other private banks in Ethiopia on a window-scheme basis. But building a fully independent interest free bank took far longer than adding a window to an existing one. ZamZam Bank became the first institution to be granted a full-fledged interest-free banking license in late 2019, following more than a decade of advocacy. It began full commercial operations on June 8, 2021.

How Does Interest Free Banking Work?

Interest free banking was introduced to extend financial services to Ethiopia’s unbanked Muslim community, structured around Islamic Sharia principles. At its core, the system does not charge or pay interest on deposits or loans.

The underlying Sharia principle is that money should be earned through work, not through money itself — in short, “you shouldn’t make money from money.” Earning or paying interest without any underlying productive activity is considered impermissible.

Another foundational principle is that Islamic finance should not cause harm. This means Sharia-compliant financial institutions avoid investing in sectors like alcohol, tobacco, and gambling.

Sharia also encourages partnership-based finance. Under agreed terms, two parties — whether two individuals, an individual and a business, or two businesses — can share both profit and risk in a joint venture, rather than one party charging the other fixed interest.

Interest-free banking is open to everyone, not just Muslims. Anyone can use Islamic finance products and services regardless of religion.

Interest free banking in Ethiopia

Ethiopia currently has 33 banks in total, of which 4 are fully-fledged interest-free banks — ZamZam Bank, Hijra Bank, Ramis Bank, and Shebelle Bank. Most of the remaining private banks, along with the state-owned Commercial Bank of Ethiopia, offer interest-free banking services through dedicated windows alongside their conventional services.