THE CHALLENGES AND PROSPECTS OF INTEREST FREE BANKING; BY TAKING EVIDENCE FROM BANKING INDUSTRY IN ETHIOPIA (COMMERCIAL BANK OF ETHIOPIA AND OROMIA INTERNATIONAL BANK AS A COMPARATIVE STUDY)

Abstract

The main objective of this study was is to analyze the challenges and prospects of Interest Free banking; by taking evidence from banking industry in Ethiopia (Commercial bank of Ethiopia and Oromia international Bank as a comparative study).The study was employed descriptive research method. The study was used both primary and secondary data which was collected through structured and semi structured questionnaire and interview. A total of 75 sample respondents were taken through judgment sampling. Of the total sample interest free banking staffs of the CBE & OIB constitutes 40 and 35 respectively This study was used Judgment(Purposive or deliberate) sampling methods. The banks were also selected on the basis of Purposive or deliberate) sampling. The data was analyzed by descriptive statistics of mean, frequency and percentage by using SPSS version 20, software. The main findings of the present study reveals about the situation regarding IFB services; the main challenges faced by surveyed banks inimplementing IFB system included lack of awareness by potential customers about IFB services, institutional challenges including taxation, desire for special regulations and lack of specialized human resource. In addition, the difficulty in segregation of funds for effective implementation of IFB was another problem expressed by respondents. The challenges are higher in commercial bank of Ethiopia when compared to Oromia international bank, while the demand of IFB are properly addressed in Oromia international bank when it is compared to commercial bank of Ethiopia.