Abstract:
Few years back Interest free banking was introduced in Ethiopia as an alternative to the banking industries within the existing conventional bank in window bases, and with the idea to strictly operate in line with the principles of Sharia. However, its operations have been constrained partly by, legal and regulation framework, misunderstanding and lack of standardization, limited market, and sharia experts and man power. Identifying the factors that cause challenge for IFB service is very crucial to make corrective action appropriately. Accordingly, this study aims to examine factors affecting interest free banking service in Ethiopia. This study used descriptive and inferential methods of analysis in order to examine the operational challenges of IFB regarding to the above four variables. In doing so, Primary data was used by preparing questionnaires to answer the research questions. To achieve the objectives of the study respondents were drawn from one government banks and three private commercial banks operating in jimma city since they started IFB financing and saving service. Data was collected through questionnaire for a population of 100 IFB staffs and 80 of them properly filled and returned the questionnaires. The data collected from the questionnaire were analyzed using SPSS version 20 statistical tools such as percentages and frequency for descriptive and also regration. The result showed that lack of proper legal and regulatory framework is the major factor that affect the operation of interest free banking, lack of sharia experts and man power and misunderstanding and lack of standardization of IFB concept significantly lagged the operations of Interest free banking and also limited market makes limited provision for the operation of interest free banking in Ethiopia
