settlement of Interest-free banking disputes under Ethiopia banking law: a comparative study

Abstract

One of the most emerging trends in global economics is the idea of interest-free banking and finance. Interest-free banking in the global landscape has emerged as an alternative banking system. It was established based on the ethos and values of Islam and is governed by the rules of Sharia law. Ethiopia is actively working for financial inclusion, especially under the country’s financial inclusion policy, which focuses on the inclusion of Muslim interests in financial institutions. This has begun with permission given for interest-free banking, followed by Islamic insurance, and now interest-free microfinance. The government introduced interest-free banking in 2011 by enacting two directives: 1) the Directive to Authorize the Business of Interest-Free BankingNo.SBB/51/2011; and 2 the Directive to License and Authorize Interest-Free Banking Business No.SBB 72/2019. In addition, these directives oblige the application of Islamic laws for interest-free banking transactions. The aim of this research is to investigate the legal framework for dispute settlement of the interest-free banking regulation in Ethiopia in line with Islamic perspectives. By using comparative methods of analyzing rules, this research has investigated and analyzed legal deficiencies. Furthermore, the study employs non- doctrinal methodology to identify the practical procedure for dispute settlement in interest-free bank in Ethiopia. The author has found that the existing legal framework is not adequate to settle disputes in the case of interest-free banking, Interest free banking dispute settled by conventional laws which are against Islamic finance principles and a dispute settlement mechanism for interest-free banking is not included in Ethiopian banking regulations. As a result, the author recommended major points in order to provide a solution to the major legal problems identified by this research that surround dispute settlement of interest-free banking, as well as making a solution to dispute settlement of interest-free banking in Ethiopia.