Abstract

Ethiopia is a country found in the horn of Africa and notable in the Muslim world as the destination of the two migration of the companions of Prophet Muhammad (PBUH). Ethiopia has a Muslim population expected to be around 50 million. Unfortunately, with this significant Muslim population, it accommodates Islamic finance in its conventional financial system lately. This study aims to investigate the current status, prospects, and challenges of Islamic finance in Ethiopia. For these reasons, different secondary data were collected and analyzed. The result of the study indicated that Islamic finance in Ethiopia is representing by three financial institutions such as Islamic banks, Islamic Insurance and Islamic microfinance. Islamic banking is providing through the Interest-free banking window and fully-fledged forms of interest-free banking. The interest-free banking window system is adopted by conventional banks, whereas Full-fledged Islamic Banks providing services using their own separate Sharia-compliant financial system. The result also indicated that high public demand, adequate capital for the establishment, availability of substantial customers, easy deposit mobilization and profitability are the foremost opportunities for Islamic finance in Ethiopia. Whereas, negative perception about Islamic finance, legal framework challenges such as restriction of investment and double taxation, and lack of skilled human resources are the main potential hindrances for the sector.

Highlights

  • The creator (Allah) sent down books for his messengers that govern human beings

  • Muslim scholars like Imam Al-Ghazali, Al- Shatbi and Tahir Ibne Ashoor explained the purpose of Islamic Shariah through detail studying of sharia sources (Auda, 2008; Ayub, 2007)

  • RESEARCH METHODOLOGY Islamic financial system is accommodated in the Ethiopian financial system lately

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Summary

Introduction

The creator (Allah) sent down books for his messengers that govern human beings. He sent down Quran for his last messenger Prophet Muhammad (PBUH). The primary sources of Islamic sharia are Quran and Sunnah of the Prophet Muhammed (PBUH); whereas the secondary sources of Sharia are the consensus Muslim scholar (Ijmaa), analogy (Qiyas) and the intellectual effort of scholars (Ijtihad) (Philips, 2006; Ayub, 2007). Muslim scholars like Imam Al-Ghazali, Al- Shatbi and Tahir Ibne Ashoor explained the purpose of Islamic Shariah through detail studying of sharia sources (Auda, 2008; Ayub, 2007). The Secondary purpose of Sharia includes launch fairness and equality; encouragement of mutual help, social security and solidarity; preserving peace and safety; collaboration in encouraging goodness and prevention of evil actions; and promoting in keeping global moral values (Nyazee, 2016; Ayub, 2007; Auda, 2008)

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