Determinants of Interest Free Banking: The case of Selected Commercial Banks of Ethiopia in Jimma City

Abstract

The purpose of the study was to examine the determinants of interest free banking the case of selected Commercial Banks of Ethiopia in Jimma City. The study was employed both primary and secondary sources of data. The study adopted both qualitative and quantitative research approach and the nature of the study was descriptive and explanatory. Purposive and simple random sampling techniques were used. The total sample of the study was 264 respondents. The primary data needed for this purpose is collected using structured questionnaires and secondary data was collected from published or unpublished annual report and journal articles. In this study both descriptive and inferential statistics such as mean, standard deviation, correlation, and multiple regression analysis were used through SPSS Version 20 software. Based on the findings, the results of the Pearson correlation analysis implies that there were statistically significant positive relationship between Existence of potential customers, Deposit mobilization and profitability of IFB service, Directives of NBE related to IFB practice and lack of awareness and understanding about IFB and interest free banking. The result from multiple regression analysis indicates that Existence of potential customers, Deposit mobilization and profitability of IFB service, Directives of NBE related to IFB practice and Lack of awareness and understanding about IFB had statistically significant contribution on interest free banking. Based on the findings of the study and conclusions made the study recommended that, the National Bank of Ethiopia give attention to the Islamic banking service system and facilitate regulations that allow effective implementation of Islamic banking service system in Ethiopia.