Interest Free Banks
Interest free banking is currently an emerging, fastest growing industry across the globe. Ethiopia, on the other hand, is still on the get-way to the sector. Even though the country has Islam as one of the oldest and highly populated religion with more than 38 million followers, (which indicates the high demand of the service), Interest free Banking in Ethiopia is still adapting through the community. Interest-free banking service abides by Shariah principles for all of its activities and Banking services.
Commercial Bank of Ethiopia which is owned by the state government was the first Bank ever in Ethiopia to start an Interest-free Banking service starting in 2013.
Islamic banking strengthened from 2011-2013 and got adopted through other private banks in Ethiopia on a window scheme. Even though the service was adopted with no time, the emerging of independent fully fledged interest free banks as an organization took longer time compared to the service. The first Interest-free Bank to provide the service on an organization level was ZamZam Bank, which was officially launched by the end of 2019.
How does Interest free Banking work?
The interest-Free Banking concept came to include the wide un-banked Muslim community of the country and provide all services accordingly to the Islamic Sharia law focusing on the rules and regulation of the Islamic religion, the idea of an interest-free banking system is known for not giving an interest both for deposit and loan services.
The Sharia regulation that interest-free Banking follows has a core idea of earning money directly by work, in more brief explanation “you shouldn’t make money from money.” under any possible condition, getting involved in interest by either only through paying or receiving it, with no work being done should be avoided.
Another mainly important base idea of Sharia regulation underpins Islamic finance shouldn’t cause harm. This means Islamic financial services should not invest in things like alcohol, tobacco, gambling, and other businesses which are involved in harmful sectors.
Sharia also encourages partnership. This means that under any possible condition and agreement of the parties, making a partnership and sharing both profit and risks, and supporting one another is highly recommended. The partnership can be between two individuals, an individual and a business, or a business and a business.
Interest free banking is open for both religion followers and non-followers and anyone can use Islamic finance products and services – you don’t have to be a Muslim.
Interest free banks
Ethiopia currently has about 30 Banks, 3 of which are fully-fledged Interest free banks, and most of the remaining private Banks including the Government Bank (Commercial Bank of Ethiopia), give Interest-free Banking services on a window level.