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BusinessSharia-compliant financial services gain traction in revised strategy

Sharia-compliant financial services gain traction in revised strategy

NBE leads works to accomplish goals in second financial inclusion strategy

Interest-free financial services are among the priorities of the second edition of National Financial Inclusion Strategy, officials said.

The strategy was approved by the Council of Ministers a few months ago and has two programs adhering to principles of Islamic law and Sharia-compliant financial services.

It is a revision of the first financial inclusion strategy approved in 2017 and in operation since then. It is to be recalled that the strategy was developed aiming at widening access to the unbanked population and increase the number of bank account holders.

The strategy has a total number of 11 programs, of which two of them are dedicated for Sharia-compliant financial services, according to Ahmed Shide, Finance Minister and chair of the National Council for Financial Inclusion,  

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One of the programs focus on expanding infrastructures that will strengthen reachability for services related with Sharia-compliant. Service providers like banks, micro-finance institutions, insurance firms, and lease companies solely dedicated to interest free services will be expanding their branches.

The Council under the secretariat of National Bank of Ethiopia (NBE) is undergoing three main activities under this program. They are conducting studies on enabling environments, expanding branches of the Sharia-compliant service providers, and encouraging deposits at interest-free banks, as Ahmed explained.

The other program is expansion of the financial services and products under this principle.

At an event held to discuss interest-free finance in Ethiopia last Thursday, August 11, 2022, at Sheraton Addis, Finance Minister, Ahmed Shidie, Solomon Desta, NBE’s Vice Governor, the newly elected president of Ethiopian Islamic Affairs Supreme Council, Haji Ibrahim Tufa, and several other government officials were present. Dubbed Interest-Free Finance and Economy Summit, the summit was the first of its kind.

In his speech at the summit, Ahmed remarked that the government during the last few years has been committed to reforms in the financial sector. The reforms include amendment of proclamations governing the banking, insurance, and microfinance businesses.

“The reform works in the financial sector has seen three major legal amendments in consideration of the Muslim community,” Ahmed said.

Attributing to the reform works, there are now three full-fledged interest free banks with two of them beginning operation and the third one just approved by the NBE. A microfinance institution is also transformed as full-fledged interest-free bank.

About 11 banks have also opened special windows providing interest-free banking services. A total deposit of 117.2 billion birr and 11 million accounts were recorded at these 11 banks as of end of March this year.

The banks only have 4,842 credit accounts in their interest-free financial service windows, and availed only 35.5 billion birr to these accounts.

“Much progress is expected,” Ahmed said.

Representing NBE’s Governor, Yinager Dessie (PhD), Solomon stated in his speech that the interest-free finance services globally reached over USD two trillion.

He attributed the establishment of full-fledged interest-free financial services to the reforms undergone in the last four years.

“As these services are new to the country, more works in terms of regulation and application of financial technology are needed,” Solomon said.

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