The National Bank of Ethiopia (NBE) has announced plans to establish a central Shari’ah Advisory Board to strengthen governance and oversight of the country’s growing interest free banking sector.
Frezer Ayalew, Director of Banking Supervision at the National Bank, said the establishment of the board marks an important milestone in Ethiopia’s financial sector development by creating a unified governance framework for Shari’ah compliant financial services across the country.
Ethiopia’s interest free banking sector began with the 2008 Banking Business Proclamation, which allowed conventional banks to provide interest free banking services through dedicated windows. The sector later expanded following product directives issued in 2011 and regulatory reforms introduced in 2019 that enabled the establishment of fully interest free banks.
The revised Banking Business Proclamation further strengthened the legal foundation by recognizing interest free banking as an integral part of Ethiopia’s banking system, allowing foreign investment and providing a framework for targeted regulatory supervision.
Recent data from the National Bank shows that 24 banks currently provide interest free banking services through dedicated windows. These institutions manage more than 33 million savings accounts, with assets exceeding Birr 567.1 billion, equivalent to approximately USD 3.2 billion.
Customer financing through interest free products has reached Birr 237.2 billion, or around USD 1.3 billion, across 86,000 accounts. Interest free banking products now represent more than 10% of total bank deposits in Ethiopia.
Speaking at the 6th International Interest Free Banking and Takaful Forum, Frezer identified limited public awareness, shortages of specialized professionals, and the absence of a centralized Shari’ah governance structure as major challenges affecting the sector.
Previously, individual banks operated their own Shari’ah supervisory committees, which resulted in different interpretations of compliance requirements and inconsistent practices. The establishment of a central advisory board is expected to address these challenges by creating common standards for Shari’ah compliance, governance, and auditing.
Frezer said Ethiopia is pursuing a dual financial system where interest free financial institutions operate alongside conventional financial institutions. He noted that countries such as Malaysia and the United Arab Emirates have adopted similar models.
The National Bank is also developing Shari’ah compliant liquidity management tools, including lender of last resort facilities, discount windows, and deposit insurance mechanisms to provide interest free banks with protections comparable to conventional institutions.
The central Shari’ah Advisory Board is expected to support research, education, and innovation in the sector, including the development of products such as Sukuk, Islamic equities, and mutual funds. The Ethiopian Securities Exchange has also identified Sukuk as a potential key Shari’ah compliant instrument for Ethiopia’s emerging capital market.
Source: Capital Ethiopia Newspaper
