ASESSING THE CHALLENGS AND OPPORTUNITIES OF

INTEREST FREE BANKING SERVICE. (IN CASE OF

COMMERCIAL BANK ETHIOPIA YIRGALEM BRANCH
NAME; TEMESGEN KUMLACHEW

ID No; ACFN/0100/11

ARESEARCH PAPER SUBMITTED FOR DEPARTMENT OF ACCOUNTING

AND FINANCE FOR THE PARTIAL FULLFILMENT OF BACHLOR OF
ARTS (BA) DEGREE IN ACCOUNTING AND FINANCE

ADVISOR; BEHAILU,T(MBA)

HAWASSA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTEMENT OF ACCOUNTING AND FINANCE

AUG, 2021
YIRGALEM, ETHIOPIA

I
 ACKNOWLEGMENT
My GOD and his mother st.marry and also gratitude to my advisor behailu (Mba) to invaluable
comments; criticism and professional advice from the beginning up to the end of this research
paper.
Next; our thanks goes to yirgalem branch and all other respondents who spent their valuable time
in filling questionnaires and our special thanks also goes to my families they support me in every
aspect of our life in financial as well as materials and all my friends who assisted in different
aspects throughout our study.
The last but not the least thanks for Hawassa University College of business and economics,
especially department of Accounting and finance to design such project through which students
develop their knowledge.

II
 TABLE CONTENT
CONTENTS Page
Acknowledgment................................................................................................................................................ I
Abstract.............................................................................................................................................................III
Table of Contents...............................................................................................................................................V
List of Table......................................................................................................................................................VII
CHAPTER ONE................................................................................................................................................ 1
1. INTRODUCTION..........................................................................................................................................1
1.1 Background of the study...............................................................................................................................1
1.2 statement of the problem..............................................................................................................................2
1.3 objectives of the study..................................................................................................................................3
1.3.1 General objective of the study...................................................................................................................3
1.3.2 Specific objective of the study...................................................................................................................3
1.4 Research question.........................................................................................................................................4
1.5 Significant of the study.................................................................................................................................4
1.6 Scope of the study........................................................................................................................................5
1.7 Limitation of the study.................................................................................................................................5
1.8 Organization of the paper.............................................................................................................................5
CHAPTER TWO................................................................................................................................................6
2. LITERATURE REVIEW...............................................................................................................................6
2.1.2 Concept of interest free bank.....................................................................................................................6
2.1.3 Challenges facing Islamic banking services..............................................................................................7
2.1.3.1 Lack of Capacity of the bank to provide IFB services............................................................................7
2.1.3.2 Lack of Supportive Institutional and Market links.................................................................................7
2.1.3.3 The Regulatory Challenges....................................................................................................................8
2.1.3.4 Supervisory Challenges..........................................................................................................................9
2.1.3.5 Absence of Liquidity Instruments..........................................................................................................9

III
2.1.3.6Use of Advanced Technology and Media................................................................................................9
2.1.4Opportunities for Islamic Banking...........................................................................................................10
2.1.5 Principles of Interest Free Banking.........................................................................................................11
2.1.6 Importance of shariah compliance...........................................................................................................12
2.1.7Forms /Types of Islamic Banking............................................................................................................12
2.1.8 An overview of interest free/Islamic banking industry............................................................................13
2.1.9 Major IFB Products.................................................................................................................................14
2.2 Empirical Review.......................................................................................................................................14
2.2.1 Empirical literature review-General........................................................................................................14
2.2.2. Empirical literature review in Ethiopia...................................................................................................16
2.3 Literature gap............................................................................................................................................. 17
CHAPTER THREE..........................................................................................................................................18
Research methodology.....................................................................................................................................18
3.1 Research design..........................................................................................................................................18
3.2 Research Approach...................................................................................................................................18
3.2.1 Target population and sample size..........................................................................................................18
3.3 Type and source of data and method of data collection..............................................................................19
3.3.1 Type and source of data...........................................................................................................................19
3.3.2 Method of data collection........................................................................................................................19
3.4 Methods of data analysis............................................................................................................................19
CHAPTER FOUR............................................................................................................................................20
4. Data Analysis and presentation....................................................................................................................20
4.5 Interview for managers...............................................................................................................................33
CHAPTER FIVE..............................................................................................................................................34
Conclusion and Recommendation....................................................................................................................34
5.1 Introduction................................................................................................................................................34
5.3 Recommendation........................................................................................................................................36
APPENDIX A......................................................................................................................................................
APPENDIX B......................................................................................................................................................

IV
List of Table

Table 4.1 Demographic variable of the respondents.....................................Error: Reference source not found
Table 4.2 employee response about the capacity of the bank to provide interest free bank service............Error:
Reference source not found
Table(4.3) employees response about the opportunities of IFB service.......Error: Reference source not found
Table( 4.4)employees response about the challenges of interest free bank service Error: Reference source not
found

Abstract

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The main objective of this study is to empirically examine challenges and opportunities
of Interest free banking services in commercial bank of Ethiopia particularly yirgalem branch.
The study has employed descriptive research based on survey and the data are of cross
sectional type. The study has used only primary data which are quantitative and
qualitative in nature and have been collected through structured and semi structured
questionnaire and interview. A total of 25 sample respondents were taken through census
sampling .Based on the analysis of the obtained data, this research has found out the
challenges and opportunities to interest free bank services as: lack of capacity to deliver
interest free bank product at full rage, lack of qualified human resource as well as regulatory
and supervisory challenges. Accordingly, the following recommendations were forwarded by
the researcher based on the results of the findings in conjunction with literature review
reflections: the bank provide sustainable and continuous training to build the capacity of
the manpower, The Bank should to increase the accessibility of interest free bank products
through increasing interest free bank window at customers‟ convenience with the necessary
facility that will increase the marketability of interest free bank product or service ,give the
required attention and focus for the business and the bank has to be transparent in its interest
free bank service business under taking.

Key word: interest free bank service, delivery of interest free bank product or service.

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The definition of Islamic/Interest free banking revolves around Islamic law in the definition
given by ( Ziauddin,1994), the term" Islamic banking" means conduct of banking operation in
consonance with Islamic teaching. The definition given by( Moin,2008) depicts Islamic banking
as the system of banking consistent with principles of Islamic law (shariah) and guided by
Islamic economic .according to( Kettle,2011).Islamic banks provided commercial services that
comply with the religious injunction of Islam they provide service to their customers free from
Interest (the Arabic term for which is riba).An Interest free bank giving and taking of Interest is
prohibited in all transaction rather it provides awards or returns on the basis of Interest
free(Islamic)banking performance through profit and loss sharing (PLS)as well as hibah or gift
(Lewis and Algaoud,2001 and Ahmed, 2008).According to( Metwally,1984 and Al-sultan,1999)
in Muslim society banking activity is accepted but what is not acceptable is the usage of Interest
for financial Intermediation and the involvement of business activity is that contradict the
Islamic law , thus, Interest free/Islamic banks were established to conform to Islamic law-
shariah and meet the banking needs of this society. Ethiopia having a significant Muslim
population provides a huge potential for Islamic /Interest free banking though Interest free
banking service apart from religious restriction. the study made by (Mohamed, 2012), has found
out that there is need for Islamic banking product and services in Ethiopia. National banking of
Ethiopia (NBE) has authorized banks undertake IFB business in year 2011; following this
authorized bank have been started IFB service in year 2013.

According to (Sefiaini,2014), for the sizable Muslim population in Ethiopia, there is a need for
adequate banking service to serve this segment of the population. Bank reach to their customers
through providing service that meet the need and wants of these customers. According to
(Arisetal,2013),the increasing trends of Islamic finance ,Islamic institution(IFI)around the
world are encouraged to develop and innovate new service in order meet ever-changing demand

1
from its customers and potential customers. In order to satisfy the banking need of this
population, bank shall provide adequate IFB services, create conducive environment and
encourage the use of these service accordingly. Islamic banking, on the one side, is being spread
all over the world and regarded as a fastest growing market, on the other side; it is not free from
issues problems, and challenges. The Islamic banking faces serious problems to practice Islamic
laws; proper interbank money market is not available and poor regulatory framework for interest
free banking (Irfan ET .al 2004).

1.2Statement of the problem

Ethiopia has large Muslim population whose contribution to the national economy is also
enormous. This section of the society will have disadvantaged to modern finance, not design but,
due to their faith and secular natural of financial industry, they have strong reservation against
conventional bank whose functional are based on free Interest, thus community needs banking
system that best suit their need and at the same time in line with their religion. According
to( Teferi,2015),introduction of IFB does not only create inclusive financial system for the
Muslim population but also has a potential to influence and enhance the economic development
of the country through resource mobilization and employment creation by encouraging people to
use the banking system.

On the other hand few studies were conducted on the attributes of interest free bank. Among
those studies (Muhammad ,2012) has studies the opportunities and challenges of free interest in
commercial bank of Ethiopia, his work has identified the potential challenges as; Institutional
challenges, lack of support and development in Islamic studies, lack of qualified human resource
as well as wrongful association with specific religion and global terrorism. This was studied
before the introduction of interest free bank in Ethiopia; therefore it was not actual observation
fact on the ground. (Debebe,2015) has conduct study on factor affecting customers to use interest
free bank in Ethiopia; the result show that perceived relation advantage, perceived compatibility,
customers’ level of awareness and subjective norm have a significant positive Impact on the
attitude towards interest free banking in commercial bank of Ethiopia. This study will be about
impact assessment on the attitude towards IFB usage which does not address the current problem
at hand. On the other hand (Teferi’s, 2015) study is about ’contribution of IFB to economic

2
development and its opportunities of the interest free bank in Ethiopia’. The study has assessed
the contribution of including the Muslim population in to the banking (financial system) to the
economic development and GDP growth. Thus, none of the above studies addressed the reason
for why the bank has availed some of IFB service to the market. Therefore this study will attempt
to fill the research gap by investigating the challenges and opportunities faced by service
providers of interest free bank service through interest free bank.

However, the best skill of research was in commercial bank of Ethiopia particularly in Yirgalem
town Yirgalem branch there was no study on the following problem, primarily on the capacity
of the bank, inadequate legal and supervision framework, inadequate man power with request
knowledge. So that the researcher evaluates these and related activity in commercial bank of
Ethiopia particularly in Yirgalem branch, and was provide a solution for the problem regarding
on the assessment of challenges and opportunities of interest free bank service in case of
commercial bank of Ethiopia particularly in Yirgalem branch.

1.3 Objectives of the study

1.3.1 General objective of the study

The general objective of the study was to examine the challenges and opportunities of interest
free bank service in commercial bank of Ethiopia particularly in Yirgalem branch.

1.3.2 Specific objective of the study

• To assess the capacity level of the bank to deliver the interest free bank service.

• To assess the challenges on delivery interest free bank services to the bank.

• To assess areal opportunities that justify in the operation of Islamic financial services
institution.

1.4 Research question

• What are the capacity levels of the bank to provide interest free bank service?

• What are the challenges to deliver interest free bank services to the bank?

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 • What are a real opportunities that justify in the operation of Islamic financial services
institution?

1.5 Significant of the study

This study specifically strive to achieve the following special objectives.

• The researcher was beneficiary on getting knowledge about the study and experience on
conducting this research and getting satisfaction when the studies will the solution for the
problem.

• The other researcher was take this study as a reference for conducting this research
related study by taking this study and they can check them self with identified problem.

• It has the pool knowledge and as a base for further research in the field of interest free
banking.

• It enables the bankers to use the finding from this study to enhance their knowledge on
the Ethiopia banking users and the profiles of Ethiopian potential customer.

• This study also can assist the bankers in formulating different strategies and polices to
attract more banking users by knowing the customers level of intention towards use of
interest-free banking.

• It helps for commercial banks that do not offer-interest free banking and was like to adopt
t to offering this service.

• It helps for the customers in terms of knowledge of the service; the more knowledgeable
the person is about the service, the more likely he/she was utilize the facilities. Therefore,
in order to capture greater market share, customers must be well informed of the service
as well as the interest-free banking system itself.

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1.6 Scope of the study
1.6.1 Area of the study

The scope of this study was focused on examining the challenges and opportunities of interest
free banking service in commercial bank of Ethiopia in Yirgalem branch in Yirgalem town. the
area scope of the study was focused on the commercial bank of Ethiopia yirgalem branch.

1.6.2 Time scope

This study was focused on the data that are between year 2015- 2018 this is because the study
focused on the recent data that are available in near places.

1.7 Limitation of the study

The researchers faced so many problems when making this study fore example the researcher
was faced the shortage of finance or was faced financial problems, shortage of time, and the
researcher faced shortage of data that was used for assessing of the challenges and opportunities
in interest free banking service and also the respondents that are selected for responding the
questionnaires and interviews are may not give the required information or they have not willing
to respond the questions.

1.8 Organization of the paper

The researcher would incorporate (contains) five chapters, the first chapter deals with
introduction, which includes the background of the study, background of the organization,
statement of the problem, objective of the study significance and scope of the study. The second

chapter deals with literature reviews which is related to THE CHALLENGS AND OPPORTUNITIES OF

INTEREST FREE BANKING SERVICE . The third chapter deals with methodology, the fourth chapter
deals with data analysis and interpretation. The fifth chapter deals with summery, conclusion and
recommendation of the study

5
 CHAPTER TWO

LITERATURE REVIEW

In this section the study was concerned about empirical and theoretical literature review which
conduct details in each of sub sections.

2.1 Theoretical Literature Reviews

• Definitions
The definition of Islamic / interest free banking revolves around Islamic law. In the definition
given by ( Ziauddin, 1994), the term "Islamic banking" means conduct of banking operations in
consonance wit Islamic teachings. The definition give by ( Moin, 2008) depicts Islamic banking
as the system of banking consistent with principles of Islamic law (shariah) and guided by
Islamic economics. According to (Kettell,2011), Islamic banks provide commercial services that
comply with the religious injunctions of Islam. They provide service to their customers free from
interest (the Arabic term for which is riba). The giving and taking of interest is prohibited in all
transaction under the Islamic financial principles. Shariah prohibits the practice of giving or
accepting additional money for money that is borrowed. Bello and (Abubakar,2014) define
Islamic banking as banking system that operates strictly on the basis of shariah.Thus,based on
the definition given by above authors.
Islamic banking is banking operation based on shariah which prohibits the giving and taking of
interest in all transaction and in consonant with Islamic finance and economic principles.

Nienhaus, the market shares of many Islamic banks have increased over time, notwithstanding
with the deceleration in the growth of deposits (samod, 2004; Bello and Abubakar, 2014; kettell,
2011).

2.1.1 Concept of interest free bank

According to the study made by (Ibrahim,2012), the concept of Islamic banking and interest.
Free banking is synonymously used in Islamic economics literature as an alternative banking

6
frame work to the interest-based conventional banking practice. However, there is a difference
between an interest –free banking and an Islamic bank but they are sometimes used
interchangeably. Islamic banking not only avoids interest in its entire ramification but also it
avoids all other Islamic ally prohibited activities. Interest free banking system on the other hand,
does not engage in interest but there is no reason to suppose that all its other activities will be
Sdone strictly according to Islamic law ʻʻshariah.ʼʼ (samod, 2004; Bello and Abubakar, 2014;
kettell, 2011).

The prospect of Islamic Banking looks very bright. Ethiopian Muslims everywhere want Islamic
Banking. In addition, Ethiopia having more than 30 million Muslims offers huge opportunities to
exploit. The size of the market will be very large as majority of Ethiopian Muslims, in the name
of religious faith, are looking for interest free financial services. It is pertinent to mention here
that Islamic banking is not meant for Muslims only but non Muslims may also avail the benefit
of it. And it is feasible to have a parallel banking system: one based on Sharia along with a
conventional one.
The Growth and Transformation Plan, third five year economic plan, envisages inclusive growth
with development in all sectors of the economy. Islamic banking is an effective mechanism to
subjugate the liquidity and inflation problems while allowing inclusive growth. For real inclusive
growth, which requires increase in income and employment should be ensured for all segments
of the society.
If Islamic banking is introduced, the inadequate labor capital ratio, for informal sector workers
and farmers associated with agriculture and manufacturing industries could be resolved through
equity finance, which might be a revolution in our agriculture and unorganized sector. With
improved labor capital ratio, our vulnerable workers associated with agriculture and unorganized
sector might be able to compete effectively with the formal sector workers. Thus Islamic
Banking may financially empower majority of Ethiopian workers and farmers. Islamic banking
may induce our political leaders to substitute grants and subsidies with equity finance which
helps achieve self-reliability that never comes through grant and subsidies schemes, through
specialized financial institutions.

7
Moreover, with introduction of Islamic banking, Ethiopian government will certainly gain
diplomatic advantages to make financial dealings with Muslim dominated nations especially to
attract trillion dollars of equity finance from the gulf countries. Finally, Islamic banking should
not be regarded as religion based banking business, but could be profitably used to resolve issues
pertaining to economy (samod, 2004; Bello and Abubakar, 2014; kettell, 2011).

2.1.2 Principles of Interest Free Banking

The operations of Islamic banking primarily are based on profit and loss sharing (PLS)
principles. An Islamic bank does not change interest but rather participates in the yield resulting
from the use of funds. The depositors also share in the profits of the bank according to a
predetermined ratio. There is, thus a partnership between the Islamic bank and its depositors, on
one side, and between the bank and its investment clients, on the other side, here by acting as a
manager of depositors’ resources in productive uses, that is an interest free/Islamic bank in
relation to its clients plays the role of partner, investor and trader. The complexity of Islamic
banking comes from the variety (and nomenclature) of the instruments employed, and in
understanding the underpinnings of Islamic law (kettle, 2011). Islamic banking is a unique type
of banking system that devoid all forms of transaction that is prohibited in Islamic. So for any
bank to be classified as Islamic bank, the following basic principles must be adopted for its
operations (samod, 2004; Bello and Abubakar, 2014; kettell, 2011).

Predetermined loan repayments as interest (riba) is prohibited,

• Speculative behavior is prohibited

• Only shariah-approve contracts are acceptable

• Profit and loss sharing is at the heart of the Islamic system

• Contracts are sacred

• The implementation of Zaskar the compulsory Islamic tax

• Transparency in all transactions.

8
 • These basic principles are then applied to the various specific transactions of, for example
pledge, deposit, guarantee, agency, assignment, land tendency, religious or charitable
bodies and partnerships.

2.1.3 Importance of shariah compliance

While financially soundness may be enough for retaining the confidence of client of a
conventional bank, in the case of Islamic bank, shariah compliance is equally important. An
Islamic bank could fail as much due to noncompliance to the shariah as for financially
imprudence. There for, it should be ensured that all activities of an Islamic bank comply with
shariah principle (Al-Jarhi and Iqbal, 2001).

According to (Kettell2011), to ensure financial activities are in conformity with the shariah law,
religious supervisory boards are mandatory for Islamic banks. The shariah supervisory
committee examines contracts, dealings and transaction to assure that Islamic beliefs are being
implemented. The board guarantees and certifies that the banking activities are halal
(permissible). It is merely an advisory body, but nevertheless it has an authoritative and
respected function because the bank entrusts the SSB with question as to the permissibility of its
activities. Being part and parcel of Islamic economic activities, Islamic /interest free banking and
financial activities are therefore subject to the shariah law.

2.1.4 Forms /Types of Islamic Banking

According to (Al-Jarhi and Iqbal ,2001), the practice of Islamic banking at present, takes one of
the following form;

• Islamic bank operating within a financial system where all bank are Islamic

• Islamic bank operating alongside other conventional bank and

• Shariah complaint branches, window and funds established by some conventional bank.

9
 2.1.5 An overview of interest free/Islamic banking industry
Muslim Scholar has developed a radically different model of banking which does not make use
of interest. The earliest experiments I Islamic banking took place in most case an individual
initiative with governments playing a more or less passive role. In 1963, Islamic banking comes
in to operation even on more intensive scale (Moin, 2008). The mile stone, in growth and
popularity of Islamic financial institutions (IFIS), was the conference of foreign minister of
Muslim countries (1997), where decision of establishment of Islamic development bank (IDB)
was taken place. It has aimed to promote Islamic banking with the objective of providing
development funds for infrastructure development project in developing or less developed
countries. Then the first commercial bank was established in united Arab Emirates (UAE)in
1974 on private initiative. Followed by Islamic development bank (IDB) establishment has an
international financial institution in 1975 held Jeddah, Saudi Arabia (Pasha2014) by the mid
1980s, interest free banking, based on Islamic principles became an established part of main
stream banking in the middle east and south Asia. They continued to sprout across south and
east Asia in addition to Turkey and the Arab countries, now the practice of Islamic banking is not
limited to Arab and Muslim countries but has spread "from east to west," all the way from
Indonesia and Malaysia towards countries where Muslims are minorities, such as UK,
Luxemburg, Denmark, Australia, India and the Americans. Not only that many conventional
banks including some major multinational western bank have also started using Islamic bank
techniques (Iqbal and Molyneux, 2005).

According to standards and poor’s rating service (2014), the asset held by Islamic financial
institutions worldwide is estimated to be $ 1.8 trillion and likely to sustain double digit growth
over the coming few year to reach about and $3 trillion. The sound economic resilience of the
industry’s twin engines – Malaysia and Gulf cooperation council (GCC; comprising Bahrain
Kuwait, Qatar, Saudi Arabia and UAE) will help the industry sustain strong growth rate.

Despite the economic and financial downturns that have engulfed many international economic
and financial centers, Islamic financing still exhibits a two-digit growth over the past few years.
The industry is operating across 75 jurisdictions with 600 institutions. As a result of this growth
and spread. Islamic finance is no longer confined to its traditional Muslim and Arab markets.
Rather, it has spread, in various degrees, all over the global (Belouafi and chichi 2014)

10
 2.1.6 Major IFB Products
Islamic financial product offer new opportunities for institution to address previously unexplored
consumers and business segments. The introduction of Islamic financial product across the world
has been in response to the growing need of a significant segment of the market place that
refused to deal with interest-based instrument, Islamic bank aim at addressing the need of new
segment by creating range of Islamic ally acceptable products. The development of which pose
significant challenges arising from the need for shariah compliance in addition to regulatory
complexities market such product is another challenge in light of competition from conventional
banks and the need for innovative products (Hassan and Lewis 2007).

Interest free / Islamic banking operates according to Islamic law which requires all the
transaction to be shariah compliant including the non receipt and payment of interest. In involves
profit -sharing as per agreement and loss / risk sharing as per investment between banks and
customers as its main method. It provides several products through different modes. The
products are recognized based on the contracts instead of the commercial orientation (Kettell
2011). Islamic banks have devised (and still devising) new instrument / products to enable them
achieve their objectives in accordance with Islamic law (Al-sultan 1999).

2.2 Empirical Review

2.2.1 global studies

Interest free bank industry is highly nascent in comparison to the convention banking industry. It
is striving to develop its own institution, operational and regulatory infrastructures in order to
grow and prosper (Khan and Bhatti 2008).
At international experience, many studies on challenges of interest free (Islamic banking) have
been conducted. These studies have shown that Islamic banking in Muslim or non Muslim
countries have faced number of challenges. (Iqbal, Ahmed andKhan,1998). (Bello and
Abubakar2014, Njamike 2010, Ibrahim 2012, Kinyanjui 2013, Saleh and Zeitun,2005 and
Karbhari, Naser and Shahin, 2004).thus, Ethiopia is not an exception. However, to
The best knowledge of the researcher, there is paucity of research work on the topic under study
in Ethiopia context and the research believed this will make the study to contribute knowledge
and fill the gap in the area. According to studies conduct on challenges of interest free bank at

11
international level. The identified challenges in the researcher’s respective countries due to the
difference in each country social, economic, religious, political and technology and other factors
through there are some common challenges to these countries thus, the researchers has reviewed
some of the study’s and has presented as follows. (Iqbai,Ahamed and Khan,1998) has divided
the challenges of Islamic banking as institutional and operational challenges. The institutional
challenges are poor institutional framework, and supervisory polices, poor supervisory
framework, disparity in accounting standards, lack of equity institution, absent of organized
secondary financial market ,and lack of short market placement of funds .while the operational
challenges are improper financial engineering ,lack of teaching, training ,research and
development in this institution, lack of profit sharing finance ,inability to adequately mobilize
deposits, competition, and finally globalization. The study made by Bello and (Abubakar, 2014)
revealed that challenges of interest free banking in Nigeria are inappropriate institutional frame
work, inadequate legal framework, lack of equity institution, poor supervisory framework,
disparity in accounting standard, lack of secondary financial market, lack of short term financial
instruments and institutions religious and cultural differences, lack of innovations in financial
products, lack of profit sharing finance. Shariah related issues, inadequate manpower with the
requisite knowledge, lack of awareness and competition .According to (Nijamike,2010)the
major problem and challenges in introducing Islamic banking in Zimbabwe are political
intervention in the selection of borrowers ,financial instability ,inability of the government to
restore law and order in the country, resistance from the banking community, inadequate
infrastructure for information dissemination ,inconsistency in police making and implementation
of the fiscal and monetary authorities ,central bank control and supervision of Islamic banking
with an qualified persons in Islamic finance, absence of Islamic interbank, misperception,
current political and economic situation and default culture, the research made by
(Ibrahim,2012)showed that legal framework, manpower, competition, financial literacy, religion
and moral hazard constitute significant constraints on the operation of the interest free banking
system his work has recommended for vigorous public enlightenment (sensitization ) program on
interest free banking, intensive man power training and development, promotional
efforts ,introduction of innovative service ,progressive monitoring and supervision of business
partner /client. Cooperation with other interest free institution and relevant stakeholder.
Expansion of the scope of the operation guidelines of non-interest banking by the central bank of

12
Nigeria and active government participation in interest-free banking at all levels(Hassan and
Lewis 2007).

2.2.2. Ethiopian studies

In Ethiopia interest free bank is a recent phenomenon. As a result, there is little empirical
literature on the area. The studies conduct so far include the following: ( Mohammed, 2012) has
conduct research on Islamic-banking opportunities and challenges in Ethiopia: research work
conduct by (Teferi ,2015) was on contribution of interest free bank to economic development.
(Mohamed,2012) has studied the opportunity and challenges of Islamic banking in Ethiopia and
his work has identified the potential challenges, lack of support and linked institution gap in
research and development in Islamic study, wrong association with specific religion and global
terrorism. This study was undertaken before the practical introduction of the interest free bank in
the country. Therefore, it was not based on actual observation faces on the ground and
respondent do not have real life experience on interest free banking service delivery and use.
(Debebe,2015), has conducted a study on, challenges to deliver Interest Free Banking in
Ethiopia‟. His study has centered on „bank intention and willingness to deliver interest
free banking service‟. The results showed that perceived relative advantage, perceived
compatibility, the bank give awareness and subjective norm have a significant positive
impact on the attitude towards interest free banking in commercial bank of Ethiopia.
This study is about impact assessment on the attitude towards interest free bank deliver
which does not address the current problem at hand.
On the other hand (Teffri,2015) study is about contribution of interest free bank to economic
development and its prospect in Ethiopia He assessed the contribution in including the Muslim
population in the banking (financial system) to the economic development and GDP growth,
Except the research conduct by Mohamed(Hassan and Lewis 2007).

2.3 research gap

The above empirical review of literature emphasis that all the studies so for conducted manly
discussed the challenges and opportunities of interest free bank service. The other studies are not
related to the current study.

13
Therefore, except in the international studies which took realities of other countries. To the best
knowledge of the researcher There is paucity of empirical study in Ethiopia context related to the
capacity of the bank, challenges and opportunities of service providers of interest free bank
product .this study, therefore attempts to fill this research gap by investigating the challenges and
opportunities faced by service providers of interest free bank service provided by Yirgalem
Branch through interest free banking window including whether there is capacity of the bank
inadequate legal and poor supervision, inadequate man power with request knowledge.
in this study the researcher rouhgly was tried to asses the effects of interest free banking service
in the customers of commercial bank of ethiopia yirgalem branch.

14
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research design

In order to achieve the stated objective of this study the researchers was used descriptive
research design. Descriptive research design is those studies which are concerned to describe the
state nature of as it’s exist the target of this research design describe what happening.

3.2 Research Approach

The primary data is quantitative and qualitative in nature that was collected from respondents of
interest free bank staff (employee, manager and director) of commercial bank of Ethiopia from
Yirgalem branch who have dedicated interest free bank windows The Researcher uses
descriptive type of research to conduct the study. Descriptive research helps to identify and
obtain information on the characteristics of certain particular qualities and detailed describing a
phenomenon they exit.additionally,the study will use both qualitative and quantitative data in
order to briefly describing the facts in details.Quantitative data will generate numerical data that
can be converting in to numbers.Qualitative data on the other hand generate non numerical
information. Therefore, the Researcher use such type of research detailing to obtain reliable data.

3.3 Target population and sample size

The target population the researchers selected for this study is the employee of Yirgalem branch
of commercial bank of Ethiopia in Yirgalem town, since by asking questions for employee about
the Challenges And opportunities of IFB services. So the researchers gets sufficient information
from employees. There are about 25 employees in Yirgalem branch of commercial bank of
Ethiopia in Yirgalem town. For this study the researchers used census Survey techniques
because the population is small number and we are interested to know detail information about
the interest free bank service in Yirgalem branch, so it is possible to address the whole
population.

15
3.4 Type and source of data

The type of data which is necessary for the study was primary source of data that was obtained
from questionnaires (from Yirgalem bank in Yirgalem town accountants) and interview (the
manager of the bank).

3.5 Method of data collection

The method of data collection that was used in this study was unstructured interview enables the
researchers to collect in-depth and valid information from the respondents about the interest free
bank service, according to (prease, Rogers, Sharp, 2002) the unstructured types of interview
allows the interviewer to pose same open ended questions and the interviewee to express his/her
own opinion free.

This requires both the interviewer and the interviewee to be at ease because it is like a discussion
of brainstorming on the given topic. The direction of the interview was determining by both the
interviewee and interviewer. Not predetermine and which use both open-ended and close ended
questions because the questions which is distribute to study population require both objective
responses (yes/no and agree or disagree) and personal responses.

3.6 Methods of data analysis

The data collected through questionnaires and interviews was organized and analyzed in the
form of descriptive /interpretive analysis method. The researcher used this method of analysis
such as tables and percentages since our research method descriptive type that relies on to
interpret and describe the data obtain from questionnaires and interview that was organized
tabulation form.

16
 CHAPTER FOUR

Data Analysis and presentation

This chapter presents the results and analysis of data that were gathered from primary
sources through questionnaire and interview. The collected data have been analyzed, and
interpreted accordingly. In this study 25 questionnaires were distributed to IFB employees
of the bank. And the entire questionnaires distributed to employees have been collected. And
in addition to the questionnaire data was collected through interview and response obtained
are summarized and presented accordingly.

Table 4.1 Demographic variable of the respondents.

Demographic variable Category Number of %
respondents
Sex Male 21 84%
Female 4 16%
Group Total 25 100%
Age Group Below 25 Yrs 5 20%
25-35 Yrs 15 60%
36-45 Yrs 5 20%
Above 45 Yrs 0 0%
Group Total 25 100%
Marital Status Single 10 40%
Married 15 60%
Divorced 0 0%
Widowed 0 0%
Group Total 25 100%
Educational Certificate
Level Diploma
BA degree 24 96%
Master and above 1 4%
Group Total 25 100%
Work 0-5 years 10 40%
Experience 6-10 years 14 56%
Above 10 years 1 4%
Group Total 25 100%
Religion Muslim 0 0%

17
 Orthodox 25 100%

Christian 0

Protestant 0

Group Total 25 100%

Source; own survey 2021

As the table (1) indicates from the total sample of 25 respondents, 21(84%) of the respondent
were male and 4(16%) of them were female .Table (1) also shows the age characteristics of
respondents .According to the data shown in the table (1) ,5(20%) of the respondents fall in the
age below 25 Yrs,15(60%) of them are in the age category between 25-35 Yrs ,5(20%) of them
are in the age between 36-45 Yrs. With regarding to the educational back ground of respondents,
most of the respondents were BA degree holders and remaining one is MS holder. The above
table has also revealed some data regarding to the marital status of the respondents .As the table
indicated that 10(40%) of the respondents were single, 15(60%) of the respondent were married,
while 0(0%) of the respondents were divorced and widowed. Table (1), also shows the work
experience of the respondents. According to the table (1) 10(40%) of the respondents were 0-5
Yrs, 14(56%) of them are 6-10 Yrs, and also 1(4%) of the respondent were above 10 Yrs. finally
all of the respondents were orthodox.

Table 4.2 employee response about the capacity of the bank to provide interest free bank
service.
Question Description Number of Percentage
No respondents
1 The bank has Strongly 13 20%
knowledgeable man power disagree
to provide interest free
banking service
disagree 1 4%
neutral 1 4%
agree 4 16%
Strongly agree 6 56%
Total 25 100%
Source; own survey 2021
The above table shows that 13(52%) of the respondents were strongly disagree & 1(4%) of the
respondents were disagree,1 (4%) of the respondents were neutral,4(16%) of the respondents
were agree & 6(24%) of the respondents were strongly agree. from this we can conclude that a

18
majority of respondents were strongly agreed but the remaining were not agreed so this indicated
that the bank human resource are not well trained & skilled
Description Number of Percentage
respondent

2 The bank has Strongly 12 16%

experienced disagree
manpower to
provide interest
free banking
service

disagree 3 12%

Neutral

Agree 4 20%

Strongly agree 6 52%

Total 25 100%

Source; own survey 2021

As we indicate in table above 12 (48%) of the respondent were strongly disagree,3(12%) of the
respondents were disagree ,4(16%) of the respondents were agree & 6(24%) of the respondents
were strongly agree. so the researchers conclude that most of the respondents are strongly
disagree ,but the remaining are agree, so that from this the researcher can conclude a majority of
the employees are not well experienced to provide IFB services.

19
 3 Description Number of Percentage
respondent

The bank Strongly 12 48%

provides its disagree
interest free
banking product
at convenient
and adequate
windows with
customer
expectation.
disagree 4 16%

Neutral

Agree 7 28%

Strongly agree 2 8%

Total 25 100%

Source; own survey 2021

As we shows in table above, 12(48%) of the respondents were strongly disagree ,4(16%)were
disagree , 7(28%) were agree& 2(8%) of the respondents are strongly disagree so the
researchers conclude that the bank did not start to give IFB with in large number of window
.this shortage of windows has created contingency on customers to use IFB services and
which made customers to wait long till they get served.

20
 Question Description Number of Percentage
respondent

4 The bank has the Strongly 6 24%

necessary IT infrastructure disagree
to process, delivery and let
use the customer the
products and service of
interest free bank
Disagree 1 4%

Neutral 0 0%

Agree 5 20%

Strongly agree 13 52%

Total 100%

Source; own survey 2021

As we shows in table above, 6(24%) of the respondents were strongly disagree ,1(4&) of the
respondents were disagree ,5(20%) of the respondents were agree & 13(52%) of the respondents
were strongly agree ,so from this the researchers conclude that the bank has not full IT
infrastructure to process & use IFB services.

21
Table (4.3) employees response about the opportunities of IFB service
Number Question Description Number of respondent Percentage

1 Do you believe that the Agree 15 44%

current global trends
have a positive
manifestations on the
Islamic banking service
in the yirgalem branch?

Disagree 2 8%
I don ΄t 8 48%
know
Total 25 100%
Source; own survey 2021
From the above table as we clearly indicated that 15(60%) of the respondents were agree 2(8%)
of the respondents were disagree & the remaining 8(32%) of the respondents were I don ‘t know
so from this the researchers conclude that the majority of the respondents were not aware about
the interest free banking services.

Number Question Description Number of respondent Percentage

2 Do you think that, if Agree 64%

the yirgalem branch offer 16
certain Islamic products
(Saving and Loan
Service), the access to
Islamic banking will
improve and the
tendency for business
expansion
Disagree 4 16%
I don ΄t 5 20%
know
Total 25 100%
Source; own survey 2021
As the researchers shows in the above table,16 (64%) of the respondents were agree .4(16%) of
the respondents were disagree & the remaining 5(20%) of the respondents were I don 't know,

22
from this we can conclude that even if most if the respondents agree but some of are not know
this is an opportunities Muslim business expansions.

Number Question Description Number of respondent Percentage

3 Do you think there is a Agree 14 56%
need for Islamic
banking in yirgalem
branch so that it will
alleviate the financial
services deprivation of
the Muslim community?
Disagree 1 4$
I don ΄t 10 40%
know
Total 25
Source; own survey 2021
As table shows in the above 14(56) of the respondents were agree,1(4) of the respondents were
disagree, and the remaning10 (40%)of the respondents were I don't know, as a result a majority
of the respondents were agree Islamic banking is that alleviate the financial services deprivation
of Muslim community. Therefore, investment in consonance with Islamic banking principles
will surely boost the engine of economic growth in our country. Moreover, Islamic
banking helps the weaker and hapless section of the society through various financial
products (Joint ventures, partnerships and leasing). Such inclusive growth will aggrandize the
economy the Muslim society.

23
 Number Question Description Number of respondent Percentage

4 Do you believe that the Agree 48%

engagement of yirgalem 12
branch in Islamic
banking services that
will address the Muslim
community’s need for
Islamic banking services
at any time soon
Disagree 3 12%
I don ΄t 10 40%
know
Total 25 100%
Source; own survey 2021
As we indicate in the above table,12(48%) of the respondents were agree , 3(12%) of the
respondents were disagree and the remaining 10(40) of the respondents were I don't know, from
this the researchers can conclude that even if some of the respondents disagree and I don’t
know the majority of the respondents were agree it is an opportunities for the yirgalem branch .

24
Table( 4.4)employees response about the challenges of interest free bank service
Number Question Description Number of respondent Percentage

Do you believe that Agree 68%

Islamic financial
1 institutions (IFIs) should 17
be governed by different
set of regulations as
they differ from
conventional banks in
many aspects such as
risk structure, form of
ownership and
governance is difficulty
for Islamic bank?
Disagree 3 12%
I don ΄t 5 20%
know
Total 25 100%
Source; own survey 2021
As the data on table shows, 17 (68 %) believe that „Islamic financial institutions (IFIs)
should be governed by different set of regulations’. 3 (12%) oppose while 5(20%) do
not know or are undecided. The findings of this study acknowledge that Islamic banking
poises a lot of supervisory challenges that needs to be looked down. However, the
supervisory issues that need to be raised are similar in many respects to those of
conventional banks, but one should also note that there are a number of potentially
difficult questions to resolve, such as liquidity and risk management. But the problems
concerned should prove „more tractable‟, the more they were understood by supervisors
and regulators.

Number Question Description Number of respondent Percentage

25
 2 Do you believe that the Agree
current Financial
Institutions regulatory
and supervisory regime 20 80%
such as those governing
initial paid up capital,
reserve requirements and
risk management
approaches poise certain
setbacks to any ongoing
or future initiatives to
Islamic financial
institutions.
Disagree 1 4%
I don ΄t 4 16%
know
Total 25% 100%
Source; own survey 2021
Table in the above depicts, 20(80%) of the respondents believe that the current Financial
Institutions regulatory and supervisory regime poise certain setbacks to the Islamic banks.
In addition, 1(4%) of the respondents were disagree while 4(16%) of the respondents do
not know or are unsure about it. So, the responses to the above observations indicate
that significant number of respondents believe that the current legal and regulatory regime
the controls the Ethiopian financial sector particularly in yirgalem branch is not help full
for Islamic banking to succeed and flourish in society.

Number Question Description Number of respondent Percentage

3 Do you think that Agree 60%

26
 yirgalem branch have not 15
enough qualified scholars
in Islamic banking to
ensure that Islamic
banking Services are up
to date and fully comply
with Sha’riah law
Disagree 8 32%
I don ΄t 2 8%
know
Total 25 100%
Source; own survey 2021
According to the data on the above table , 15 (60%) of the respondents believe that there
is a gap in research and development in Islamic studies in general and Islamic finance
and economics in particular and that the government should initiate Islamic Studies
Programs in Higher Education Institutions (HEIs). 8(32%) disagree while 2(8%) do not
know or are undecided. It has to depend on and so is the case with Islamic banking
which needs research and training forums in order to prompting entrepreneurship amongst
their clients. , in Ethiopia, most banks‟ professionals have been trained in conventional
finance and economics and they lack the requisite vision and conviction about Islamic
banking, there should be well trained and competent human resource professionals in
Islamic banking and finance that understand the moral and religious implications of their
profession.

1. Does the bank face any challenges to deliver interest free banking products?

27
Yes 2.No3.I don't know

Data have been collected through the interview of the manager; the obtained data identified
the following challenges.

• Lack of capacity to deliver interest free bank product at full capacity: According to
the interview the bank man power is inadequate in number, not well trained and
inexperienced to undertake interest free bank service, it is a serious challenges to
deliver interest free bank product or service.

• Inadequate market and promotion: weak marketing and promotion conducted by the
bank has indirectly and negatively affected the utilization of interest free bank
products. The marketing and promotion was not done to help the products to be
known by the public.

2. Do you think the bank has the capacity of provide interest free banking products to its
customers-,IT, then necessary infrastructure?
1. Yes 2.No3. I don’t know
• The bank has not the necessary infrastructure undertake interest fee bank business at full
range

3. Does the bank get any opportunities at the time of deliver interest free bank service?
1 .yes 2.No 3.idon'tknow
• The bank has its own opportunities at the time of deliver interest free bank services this
are

• To increase the capital asset of the bank

28
 CHAPTER FIVE

CONCLUSION AND RECOMMANDATION

5.1 Introduction
The main objective of this study was to identify challenges and opportunities that banks
face to deliver Interest free banking services In addition to its main objective, bank’s
capacity to deliver IFB service ,inadequate legal and poor supervision, inadequate man power
with request knowledge about IFB products have been examined. Based on the collected
data and analysis work, this part provided the conclusions drawn from analysis results
and possible recommendations of the researchers.
5.2 conclusions
Conclusions which have addressed the objectives of the study have been drawn from the
analysis results. Based on this, the main findings of the study are presented as follows:
• In regarding to sex the majority of the respondents in yirgalem branch were male, in
related to the age the majorities of respondents within the institution were falls between
25-35 Yrs.
• In related to marital status, religion the majorities of the respondents were marriage and
orthodox respectively.

• In regarding to work experience the majorities of respondents were fall

• between 6-10 Yrs and some of were between 0-5Yrs while regarding to the educational
level the almost all of the respondents were degree holder in yirgalem branch.

• Regarding to the capacity of the bank to provide IFB service .This result showed that
the bank does not have the capacity to deliver full range of IFB products/services
to its customer. The considered parameter to assess its capacity turnout with a
negative response that is the bank’s human resources are not well trained, skilled
and experienced. Moreover, the services provided by the bank are not in a
convenient with expected service level. However, the bank has not enough
infrastructure to undertake IFB business. In addition to response obtained from the
closed ended questionnaire, the researcher has gathered data through interview
question that showed the bank's human resource at present lacks knowledge, not

29
 competent enough to satisfy customers, and also inexperienced and inadequate in
number to serve customer. and there is also shortage of window within the bank
which made customers to wait long till they get served.

• The study further investigated the challenges and opportunities of Islamic banking in
yirgalem branch. as we showed in the analysis,

• In regarding to the existence of current global trend the majorities of the respondents
were believed that have positive manifestation in interest free bank services.
• The study further investigated the opportunities of Islamic banking in yirgalem branch.
the majorities of the respondents feel that there is a need for Islamic banking in
Ethiopia so that to alleviate the financial services deprivation of the Muslim
communities and also the majority of the respondents believe that „the tendency of
business expansion and investment activity will increase’ and access to Islamic
banking would improve if the existing banks began to offer financial products that
are in line with Islamic banking

• In regarding to that Islamic financial institutions (IFIs) should be governed by

different set of regulations as they differ from conventional banks in many aspects
such as risk structure, form of ownership and governance is difficulty for Islamic
banking, the supervisory issues that need to be raised are similar in many respects
to those of conventional banks, but one should also note that there are a number
of potentially difficult questions to resolve, such as liquidity and risk management.
But the problems concerned should prove „more tractable‟, the more they were
understood by supervisors and regulators.

• The current Financial Institutions regulatory and supervisory regime such as those
governing initial paid up capital, reserve requirements and risk management
approaches poise certain setbacks to any ongoing or future initiatives to Islamic
financial institutions , according to this the majority of the respondents believe that the
current Financial Institutions regulatory and supervisory regime poise certain
setbacks to the Islamic bank

• In regarding to that yirgalem branch have not enough qualified scholars in Islamic
banking to ensure that Islamic banking Services are up to date and fully comply with

30
 Shariah law so that we can conclude that most of the respondents believe that yirgalem
branch have not enough scholars in interest free bank services.

5.3 Recommendation
This section presents recommendations of the study based on the results of analysis and
conclusions which believed to enhance the delivery of IFB services in yirgalem branch.
• Bank as service provider need to have the required level of expertise about IFB
and cascade to the user through different means to undertake the business. There
is a need for sustainable and continuous training to build the capacity of the bank
staff for successful implementation and use of IFB products/services. Thus, it has
to provide its staff with the essential and standardize training and seminar by well
qualified and experienced trainer to increase the capacity of its staff to develop
and deliver IFB products/services. This has to be arranged on continuous and consistent
base. It has to further arrange experiencing sharing and exposure visit and
establish work relationship with international Islamic finance institution and foreign
banks that have rich experience in running successful IFB business. In the
meantime, bank should hire qualified and skilled manpower especially experienced
in interest free banking. This will create for the existing staff good opportunity to
acquire on Job training and experience too. In addition to this the bank has to
benchmark the operation and IFB products and customize it to fit to our country
banking system.

• The Bank should to increase the accessibility of IFB products through increasing
IFBW at customers‟ convenience with the necessary facility that will increase the
marketability of IFB products/services.
• The supervisory issues that need to be raised are similar in many respects to
those of conventional banks, but one should also note that there are a number of
potentially difficult questions to resolve . However, these problems should prove
„more tractable‟, the more they were understood by supervisors.
• As interest free bank product are new to the market, thus, the bank has to promote the
product or the service aggressively by developing good marketing and promotion strategy
that will promote the products to the market and create to the general public. As the
finding of this research showed the bank have low level of marketing and promotion
about interest free bank business, so the bank has to develop well planned and effective
marketing and promotion strategy link reaching the target market.

31
 REFERENCE
• Al-sultan, W1999, financial characteristics of interest free bank and conventional bank,
Doctor of philosophy thesis, department of accounting and finance, university of
Wollongong

• Aris, (2013),ʻ Islamic banking products :Regulations, Issues and challenges’, The Journal
of Applied business Research.

• Bello A & Abubakar M (2014),ʻ challenges and solutions to Islamic banking system in
pluralistic –Secular country like Nigeriaʼ, Mediterranean Journal of Social Sciences
MCSER publishing, Rome-Italy.

• Belouafi, A&chichi,A(2014)ʻ,Islamic finance in the United Kingdom :Factors behind its

development and growth, Islamic economic studies.

• Debebe,A.(2015)challenges to deliver interest free banking in Ethiopia ,an MBA This is

Submitted To Debre tabor University, Department Of Accounting Document Of
Commercial Bank Of Ethiopia (December2015)

• Ibrahim, A (2012), an Empirical Analysis On The Operational Challenges Of Interest

Free Banking Window In Nigeria: A Case Study Of Keystone Bank Limited In
NasʽArBelouafi,A&chichi,A(2014)ʻ,Islamic finance in the United Kingdom :Factors
behind its development and growth, Islamic economic studies.

• Iqbal,M(2001),ʽIslamic banking answer to some frequently asked questions’, Islamic

development bank; Islamic research and training institutes :,occasional paper.

• Kahf M , Ahmed, A &Homud, S (20005), „Islamic Banking And Development: An

Alternative Banking Concept‟, Islamic Research And Training Institutes, Jeddah

• Karbhari, Y, Naser, K &Shahin Z, (2004), „Problem And Challenges Facing The Islamic
Banking System In The West: The Case Of The UK‟, Thunderbird International Business
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• Kettell, B (2011), „Introduction To Islamic Banking And Finance‟, First Edition, John
Wiley And Sons Ltd., UK

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From The Kenyan Experience‟, European Journal Of Business And Management.

32
• Lwis,Algaoud 2001&Ahamed 2008 As Living Interest Is Prohibited In All Transactions
Rather It Provide Award Or Returns On The Bases Of Interest Free Banking Performance
Through Profit And Loss Sharing As Well As Hibh Or Gift.

• Moin, M (2008), „Performance Of Islamic Banking And Conventional Banking In

Pakistan: A Comparative Study‟ Master Degree Project In Finance, University Of
Skovda, School Of Technology And Society.

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Ethiopia‟, An EMBA Thesis Submitted To Addis Ababa University, Department Of
Management

33
 APPENDEX
HAWASSA UNIVERESITY
AWADA BUSSINESS AND ECONOMICS COLLAGE
DEPARTMENT OF ACCOUNTING AND FINANCE

Dear respondents:
First of all we would like to extend our sincere gratitude for helping us by fulfilling this
questionnaire. The purpose of this questionnaire is to collect data to be used in first degree
research project entitled" examining the challenges and opportunities of interest free bank
services in case of commercial bank of Ethiopia particularly in Yirgalem branch."To achieve the
objective of this research your real, honest and timely response found to be very much important.
And the researchers would like to assure you that every response will be used only for academic
purpose to achieve the objective of this research. Therefore, the researchers kindly request fill the
following questions with integrity and honestly.

General Directions;
It is not necessary to write your name
Indicate your answer by putting the mark "√" in the space provided in the box and Write
your answer on the space provided for open ended questions.
Please try to fill all questions.
The questionnaire has four parts.

PART ONE: QUESTION RELATED TO RESPONDENTS.

1 Sex: Male Female

2 Age: below 25 years. 25-35 years
36-45 years. Above 45 years
3 Marital status:
1. Single 2. Married
3. Divorced 4. Widowed
4 Level of education: certificate Diploma
BA degree Masters & above
5 Work experience:
0-5 years 6-10 years above 10 years

Page 1
 6 Religion: 1. Muslim 2. Orthodox Christian

3. Protestant

Part two: questioner related to capacity of the bank to provide IFB services to
the respondents

strongly Disagree Neutral Agree Strongly

disagree

1 The bank has

knowledgeable manpower
to provide interest free
banking?

2 The bank has experienced

manpower to provide
interest free banking?

3 The bank provides its

interest free banking
product at convenient and
adequate windows with
customer expectation.

4 The bank has the

necessary IT infrastructure
to process, delivery and
let use the products and
service of interest free
bank?

Page 2
Part three: questioner related to opportunities of IFB in Ethiopia to
respondents

agree disagree I don't

know

1 Do you believe that the current

global trends in Financial
Services will have positive
manifestations on the future of
Islamic banking in Ethiopia?

2 Do you think that, if the

existing banks offer certain
Islamic products (Saving and
Loan Service), the access to
Islamic banking will improve
and the tendency for business
expansion?

3 Do you think there is a need

for Islamic banking in Yirgalem
branch so that it will l alleviate
the financial services deprivation
of the Muslim community?

4 Do you believe the current

commercial banks, public or
private, will engage in Islamic
banking services that will
address the Muslim community’s
need for Islamic banking

Page 3
 services any time soon?

Part three: questioner related to challenges items to respondents

Agree disagree I don't

know

1 Do you believe that Islamic financial

institutions (IFIs) should be governed by
different set of regulations as they differ
from conventional banks in many aspects
such as risk structure, form of ownership
and governance is difficulty for Islamic
bank?

2 Do you believe that the current

Financial Institutions regulatory and
supervisory regime such as those
governing initial paid up capital, reserve
requirements and risk management
approaches poise certain setbacks to any
ongoing or future initiatives to establish
Islamic financial institutions?

Do you think that Yirgalem branch have

enough qualified scholars in Islamic
banking to ensure that Islamic banking
Services are up to date and fully comply
with Sha’riah law?

Page 4
1, Does the bank face any challenges to deliver interest free banking products?

1. Yes 2. No 3. I don't know

2, Do you think the bank has the capacity to provide interest free banking products
to its customers- competent employee, IT, the necessary infrastructure?

1. Yes 2. No 3. I don't know

3, Does the bank get any opportunities at the time of deliver interest free bank

Page 5