Policy Analysis on Ethiopia Interest Free Banking (IFB) Directive.docx - 08 September Policy Analysis on Ethiopia Interest Free Banking(IFB Directive By

Policy Analysis on Ethiopia Interest Free Banking (IFB) Directive.docx

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September 14 08 P r e p a r e d f o r M e r c y C o r p s Policy Analysis on Ethiopia Interest Free Banking (IFB) Directive By Zaineb Sefiani
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Table of Contents LIST OF ACRONYMS 3 EXECUTIVE SUMMARY 4 I - DIAGNOSIS 5 S TATEMENT OF PURPOSE 5 R EVIEW OF CURRENT POLICY 6 L EGAL FRAMEWORK 6 W HY SHOULD NBE REVISE THE EXISTING IFB DIRECTIVE ? 10 II - ANALYSIS 12 III - RECOMMENDATIONS AND COURSE OF ACTION 18 IV – IMPLEMENTATION 21 APPENDIX 22 A PPENDIX 1: B ENCHMARK OF RELEVANT COUNTRIES 22 1.1 P AKISTAN 22 1.2 S OUTH A FRICA 23 1.3 K ENYA 24 1.4 E GYPT 25 1.5 S UDAN 27 1.6 I NDONESIA 28 1.7 O MAN 29 A PPENDIX 2: I NTERNATIONAL R EGULATING B ODIES 30 2.1 I NTERNATIONAL F INANCIAL S ERVICES B OARD (IFSB) 30 2.2 A CCOUNTING AND A UDITING ORGANIZATION FOR I SLAMIC FINANCIAL INSTITUTIONS (AAOIFI) 31 A PPENDIX 3: S AMPLE OF IFB CURRICULUM FOR BUILDING CAPACITY OF TRAINERS IN E THIOPIA 32 A PPENDIX 4: Z AKAT 33 2
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List of Acronyms AAOIFI Accounting and Auditing Organisation for Islamic financial Institutions ADIBE Abu Dhabi Islamic Bank Egypt AGFUND Arab Gulf Programme for Development BCO Banking Companies Ordinance BMI Bank Muamalat Indonesia CIDA Canadian International Development Agency CIMA Chartered Institute for Management Accountants CISI Chartered Institute for Securities and Investments CBO Central Bank of Oman FNB First National Bank GCC Gulf Cooperation Council IFB Interest Free Banking IFSB Islamic Financial Services Board IIF Innovation and Investment Fund IRB Islamic Rural Banks MCMO Mudaraba Companies and Mudarabas Ordinance NBE National Bank of Ethiopia OIB Oromia International Bank PRIME Pastoralist Areas Resilience Improvement through Market Expansion SSB Sharia Supervisory Board UB United Bank UNICEF United Nations Children's Fund USAID US Agency for International Development VAT Value Added Tax 3
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Executive summary In 2013, the World Bank estimated Ethiopia’s total population at 94.1 million 1 of which 35% to 40% are Muslims. Up until 2011, no banking products were available to service the Muslim community. Although the National Bank of Ethiopia (NBE) has launched an Interest Free Banking (IFB) directive, there is still a need to develop an adequate legal framework to effectively grow and capitalise on a prosperous IFB sector. The central premise of this paper is to identify the gaps and challenges of the current directive. Out in-depth diagnosis shows that despite efforts to develop the IFB offering, the lack of an adequate legal framework, the scarcity of skilled Islamic banking professionals and the limited awareness of Islamic finance products have been hindering progress in this field. To address these problems, the NBE has rolled out an initial basic directive for IFB. Mercy Corps has sponsored three capacity building initiatives in Ethiopia, Sudan and the UAE and no actions have been undertaken to increase the public’s awareness of IFB products. The objective of this paper is to recommend strategies for: 1. Strengthening the existing directive by suggesting a clear set of products and
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