This study aims to examine the performance of the Islamic window in four Ethiopian conventional banks, the banks are chosen based on their financial statements which ranked this four higher than others with an Islamic Window in terms of their net profit. The four include Commercial Bank of Ethiopia, Cooperative Bank of Oromia, Bank of Abyssinia and Awash Bank. The government of Ethiopia permitted the interest free banking service in 2013 and fully fledged Islamic Banks in 2019. Between 2013 and 2019 ten commercial banks open Islamic window and operate side by side with other conventional services. The study of this paper therefore asses the growth of this Islamic window and performance based on deposits attracted, financing operated and investment overtaken. The study would aim to use descriptive analysis based on mainly report of the four banks chosen and also other relevant gathered sources.
Table of Contents
1. INTRODUCTION
1.1. Background of the study
1.2. Background of the commercial bank of Ethiopia
1.3. Background of Cooperative Bank of Oromia
1.4. Background of Awash Bank
1.5. Background of Bank of Abyssinia
1.6. Statement of problem
1.7. Research questions
1.8. Objectives
1.9. Significance
1.10. Limitation
2. Literature review
3. Methodology
3.1. Analysis
4. FINDINGS
4.1. Financing Activities
4.2. INVESTMENT ACTIVITIES
4.3. NUMBER OF ACCOUNT HOLDERS
5. CONCLUSION
5.1. Suggestion
Research Purpose and Themes
This study aims to evaluate the performance and growth of the Islamic window in four selected Ethiopian conventional banks—Commercial Bank of Ethiopia, Cooperative Bank of Oromia, Awash Bank, and Bank of Abyssinia—by analyzing their financial data between 2018 and 2021.
- Growth assessment of Islamic banking windows in Ethiopia.
- Analysis of deposit mobilization trends and investment performance.
- Evaluation of Shariah-compliant financing products, including Wadiah and Murabaha.
- Identification of challenges and potential for future expansion.
- Customer growth and adoption rates of interest-free banking services.
Excerpt from the Book
4.2. INVESTMENT ACTIVITIES
With all the deposited accumulated in IFB accounts, the bank would not let it stay idle but rather invest it to earn a returns; the Islamic window were allowed to invest their deposits in halal investments and earn a profits on it, in some IFB accounts like Mudharaba the customer deposits his/her money and expects a return on his deposit, such would force a bank to quickly find a halal way to invest of such money if it is unrestricted investment accounts, but for restricted investment accounts the depositor had already specified where his/her money to be invested to.
The investment of IFB were structured through Mudharaba, Musharaka, Murabaha and Istisna. Mudharabah in terms of investment from the bank is where the bank invests their funds in a specific project that is specified by a customer who needed to be funded; for instance, the customer wanted to open a factory, then the bank would fully funded the cost of instituting a factory and put a customer in charge of the factory, the customer became what is commonly known as Mudarib which means the manager who provide his/her skills and expertise into the business, on the other hand the bank that provide all capital for that investment became Rabulmaal which means capital provider. The profits for such investments are to be shared between Rabul Maal and Mudarib at a pre-agreed ratio.
Musharakah is a partnership agreement between the customer and the bank, the customer provide some amount of money to be invested in particular business and the bank also provide the remaining amount. The customer might take the role of managing the business or they (Bank and Customer) jointly appoint someone else to take of the business. The profit would be shared as per the pre-agreed ratio and loss is borne as per the percentage of the capital provided by the bank and customer.
Summary of Chapters
1. INTRODUCTION: Provides the background of Islamic banking development, an overview of the four selected banks, and defines the research scope and objectives.
2. Literature review: Reviews previous studies and academic findings regarding the growth and performance of interest-free banking services in Ethiopia.
3. Methodology: Outlines the quantitative approach and descriptive analysis used to assess technical and financial performance data from bank reports.
4. FINDINGS: Presents detailed empirical analysis on financing activities, investment profiles, and the growth of account holders across the selected banks.
5. CONCLUSION: Offers a summary of the findings, confirming positive performance trends, and suggests policy interventions for the future of Islamic finance in Ethiopia.
Keywords
Islamic window, conventional banks of Ethiopia, performance of interest free banking service, commercial bank of Ethiopia, Cooperative Bank of Oromia, Awash Bank, Bank of Abyssinia, Wadiah, Mudharabah, Murabaha, Istisna, Musharakah, financial performance, Shariah compliance, deposit mobilization
Frequently Asked Questions
What is the primary focus of this research?
The research examines the performance and operational growth of Islamic banking windows within four selected Ethiopian conventional banks that have adopted interest-free banking models since 2013.
Which specific banks are analyzed in this paper?
The study focuses on the Commercial Bank of Ethiopia (CBE), Cooperative Bank of Oromia (CBO), Awash Bank, and the Bank of Abyssinia (BOA).
What is the core objective of the study?
The primary objective is to evaluate growth metrics, including the number of customers, volume of deposits, financing amounts, and investment returns, to determine the effectiveness of Islamic windows.
What research methodology is applied?
The researcher employs a quantitative research method, utilizing descriptive analysis of annual financial reports and statement data from the sample banks over a three-year period.
What are the main topics covered in the findings section?
The findings discuss bank financing structures, specific investment models like Mudharabah and Murabaha, and the statistical increase in account holders and investment capital.
How is the term 'Islamic window' defined in this context?
It refers to a functional unit within a conventional bank that operates interest-free banking services in compliance with Islamic (Shariah) principles alongside traditional services.
How has the growth of these banks in the interest-free sector been recorded?
The records indicate a significant upward trend, with some banks demonstrating triple-digit percentage growth in investment activities and doubling their deposit bases in consecutive years.
What role does the 'Shariah board' play according to the text?
The Shariah board is crucial for ensuring that the products and investment activities offered by the Islamic windows remain compliant with religious requirements, thereby fostering customer trust.
What recommendations does the author make for the future of Islamic banking in Ethiopia?
The author suggests that government intervention, through technical assistance and the establishment of a centralized oversight body, is critical for supporting the infancy state of the industry.
How do the banks utilize customer deposits?
Banks invest these funds into halal-approved projects using models like Murabaha (trade financing), Musharakah (partnership), and Istisna (contract manufacturing) to generate returns for the depositors and the bank.
- Citar trabajo
- Guyo Golicha Huqa (Autor), 2022, The Performance of Islamic Window in Ethiopian Conventional Banks that Operate an Interest Free Banking Service, Múnich, GRIN Verlag, https://www.grin.com/document/1254203
