Ethiopia: National Bank of Ethiopia Explores Sharia-Compliant Alternatives for Treasury Bills to Accommodate Islamic Banks

Solomon Damtew the Payment and Settlement System Director at the National Bank of Ethiopia
Share this article

The National Bank of Ethiopia is actively seeking Sharia-compliant alternatives to traditional treasury bills to accommodate financial institutions that operate solely on interest-free banking principles in accordance with Islamic principles.

Since last year, a directive has been in place requiring all banks to allocate 20% of the loans they disburse for the purchase of treasury bills. However, fully-fledged Islamic banks have been exempted from this requirement, as the collection or payment of interest contradicts Sharia principles.

Discussions surrounding potential alternatives to traditional treasury bills have been ongoing since the establishment of these requirements. However, industry experts suggest that further preparations are necessary to propose Sharia-compliant solutions effectively.

Hassen Mohammed, Vice President and Information Sector Director of Hijra Bank, confirmed that discussions have commenced between Hijra Bank and the National Bank to explore the feasibility of introducing alternatives like Sukuk bonds to replace conventional treasury bills.

A senior official from Zamzam Bank, who requested anonymity, expressed concerns about implementing such systems in Ethiopia’s current economic environment. The absence of an established capital market was identified as a potential challenge to effectively integrating Islamic financial services into the treasury bill market. The official emphasized the need for investments to adhere to Sharia law and suggested that the government develop an appropriate framework.

National Bank Governor Fikadu Degife acknowledged the central bank’s awareness of the issue and its commitment to finding an optimal approach. He explained that studies of international practices are underway to provide guidance on the implementation of Sharia-compliant treasury bills. The vice governor added that preparations are underway to propose alternatives, although no specific timeline was provided.

Currently, the interest-free banking institutions operating in Ethiopia include Zamzam, Hijra, and Ramis.

The Ethiopian Securities Exchange (ETSE) recently announced its intention to introduce various Sharia-compliant financial instruments to incorporate Islamic banking principles into the country’s capital markets.

In the previous fiscal year, out of the 117 billion birr deposited in Ethiopia’s Sharia-compliant, interest-free banking system, approximately 35.5% or 41.5 billion birr had been allocated to business financing. The remaining unallocated funds, amounting to approximately 75.5 billion birr, underscore the untapped potential within Ethiopia’s Islamic finance sector.

Share this article

Africa: Equity Bank and Mastercard Forge a 10-Year Agreement to Enhance Payment Services for Consumers

Previous article

Kenya: Sasra Seeks Treasury Assistance to Recover Unremitted Sacco Deductions from State Entities

Next article

You may also like


Comments are closed.

More in Ethopia