A Critical Appraisal of the Regulatory Regime of Islamic Banking in Ethiopia

The National Bank of Ethiopia Directive to License and Authorise Interest Free Banking Business, Directive Number SBB/72/2019, allowed a full-fledged interest free banking business for the first time in the history of the country. The Directive prescribed that “all regulatory and supervisory requirements except National Bank’s directive on interest rate” shall be applied to Interest free banks mutatis mutandis. Accordingly, all National bank directives issued to regulate “conventional” banks shall be applied to Islamic banks subject to appropriate modification. In this study, the regulatory directives of the National Bank of Ethiopia were critically examined in the light of the fundamental principles of Islamic finance and plausible recommendations are forwarded for the designing of regulatory system for Islamic banks in the Ethiopian secular set up. The research primary depends on qualitative data. It, however, benefited from quantitative data to substantiate its arguments. Data was collected from the websites of the National Bank of Ethiopia and commercial banks in the country. The collected data were analysed in line with the principles of Islamic banking and the experiences of Turkey. The finding shows that the current regulatory regime is hardly sufficient to help build sustainable Islamic banking in the country.