Abstract:
The main purpose of this study was to identify prospect and challenge of interest free banking: the case of selected commercial banks Jimma city. The study mainly focused on the existence of potential customers, deposit mobilization and profitability of IFB service, directives of NBE related to IFB banking practice, lack of awareness and understanding about IFB banking, regulatory challenge and absence of liquidity instrument on interest free banking. The study employed both explanatory and descriptive research design approach. The study was based on sample size of 359 respondents. The study selected the respondents using simple random sampling technique and judgmental sampling technique. Primary data was obtained using interview and self-administered questionnaires. The questionnaire was made up of both open ended and closed ended questions. The drop and pick method was preferred for questionnaire administration so as to give respondents enough time to give well thought responses. Data was analyzed using Statistical Package for Social Sciences (SPSS Version 20.0). All the questionnaires received were referenced and items in the questionnaire were coded to facilitate data entry. After data cleaning which entailed checking for errors in entry, descriptive statistics such as frequencies, percentages, mean score and standard deviation were estimated for all the quantitative variables. Inferential data analysis was done using multiple regression analysis. Based on the finding the study conclude that there is a strong and a positive correlation with existence of potential customers, deposit mobilization and profitability of IFB service, directives of NBE related to IFB practice and regulatory challenge on interest free banking. And also Lack of awareness and understanding about IFB banking and absence of liquidity instrument are negative correlation on interest free banking. The study recommended that the national bank of Ethiopia and the Shariah Supervisory Board in Ethiopia has to provide more training and create awareness to the staff and public in order to get more opportunities and minimize the equipped challenges by providing the training centre
