The Oromia International Bank (OIB) became the first bank inEthiopiato launch interest-free banking (IFB), after the Commercial Bank of Ethiopia (CBE) on December 16, 2013.
The service, to expand in phases, has started in 24 of the bank's 60 branches inEthiopia, Abe Sano, president of the Bank, said.
The Bank will offer saving (wadia) and current (amanah) account services, as well as equity financing (mudrabah), based on principles drawn from Islam. These principles include avoiding interest, gambling and uncertainty. All business should also be conducted in writing, and profits will be shared as agreed, but loss according to capital, Abe said in a presentation he made at a ceremony held at Elelle Hotel onMarshal Tito Streeton Wednesday, December 25, 2013, announcing the launching of the service.
"But since this is strictly business and not religion, we prefer to call it interest-free banking," he said while talking about Islamic Banking, IFC's other name.
The bank announced that it would start the service when it was established six years ago, in an attempt to reach potential customers who were not banking for interest-related reasons. It had to wait until the present time, however, because the Central Bank's directive for the service only arrived in September 2013.
In this new banking service, the bank will not use depositors' money for businesses considered haram.
In equity financing, the bank will provide the fund and the client (mudarib) will provide the labour. Profit will be shared as agreed, and loss will be borne by the bank; the mudarib being held accountable to the extent of identified negligence, according to Abe.
"We had to prove to the authorities that we had ample preparations," says Abe, speaking after they acquired the license.
One of the preparations included ensuring that the core banking system installed by the Bank was convenient for launching the IFB service, which is offered online.
The Bank, which saw its profits increasing by 71.9pc to 77.5 million Br, according to its annual audited report for 2012/13, has deployed about 129 staff members in the 24 branches. Four staff from each of the selected branches consisting of branch managers, accountants, assistants and senior customer service officials, have received trainings in the implementation of the service.
Prime among the challenges the Bank expects to face while launching the scheme is the considerable time it may take for the scheme to sink into the minds of people.
"Creating awareness is essential," Nuri Hussein, acting director of IFB with the Bank, said. "We will embark upon aggressive training and awareness creating schemes."
This includes at least four conferences to be held in Addis Abeba. Similar events are also planned to take place in regional capitals.
The Bank will launch the service in three phases, the first of which has been in progress since December 16 and is expected to end in two months time. The second, which envisions pushing the number of branches offering the service up to 60, will commence anytime between May and the end of June 2014. The final phase will begin in July 2014, enabling all branches to offer the service.
A senior banking expert, who has worked for the regulatory body for over two decades, says launching the service is like forming an additional independent financial institution under the bank.
"The service provided is quite separate from the conventional banking system," he said.
Establishing a Sharia advisory board and separate financial reports, keeping all data and ensuring the segregation of activities from conventional banking are some of the requirements to launch the program.