Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia

Abebe Tilahun Kassaye

doi:doi:10.11648/j.ijfbr.20261204.11

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Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia

Abebe Tilahun Kassaye^*

Published in International Journal of Finance and Banking Research (Volume 12, Issue 4)

Received: 27 August 2026 Accepted: 5 September 2026 Published: 20 September 2026

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Abstract

Interest-free banking and finance (IFB) has evolved from a marginal regulatory accommodation into an increasingly significant segment of Ethiopia’s financial sector within little more than a decade. This paper presents a market landscape and gap analysis of Ethiopia’s IFB industry, examining its institutional evolution, market structure, regulatory architecture, growth trajectory, opportunities, and persistent structural challenges. Drawing on the National Bank of Ethiopia’s Financial Stability Reports, recent regulatory directives, institutional reports, and industry evidence, the analysis indicates that deposits under IFB services reached ETB 379.1 billion by June 2025, supported by nine fully fledged institutions and 48 window-based providers across the banking, microfinance, and insurance sectors. Despite this substantial expansion, significant gaps remain in capital-market depth, Sharia-compliant liquidity-management instruments, financing-to-deposit conversion, technological capacity, specialized human capital, product diversification, and Shariah governance. The evolving regulatory and financial-market environment, including Banking Business Proclamation No. 1360/2025 and the establishment of the Ethiopian Securities Exchange, presents opportunities for developing Sukuk, Takaful, and other innovative IFB products. The reviews suggest that IFB represents an underexploited pathway for enhancing financial inclusion, particularly among Ethiopia’s Muslim population. However, sustainable growth requires stronger regulatory parity, improved liquidity infrastructure, enhanced Shariah-compliant capital-market instruments, greater technological and human-resource capacity, and increased consumer awareness. Coordinated action among regulators, financial institutions, researchers, and industry stakeholders is therefore essential for developing a resilient, inclusive, and competitive IFB ecosystem in Ethiopia.

Published in	International Journal of Finance and Banking Research (Volume 12, Issue 4)
DOI	10.11648/j.ijfbr.20261204.11
Page(s)	84-88
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2026. Published by Science Publishing Group

Keywords

Interest-free Banking and Finance, Ethiopia, Market Landscape, Market Gaps, Financial Inclusion, Shariah Governance, Sukuk, Takaful

References

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[2]	Ahmed, M. I. (2020). The progress to allow fully fledged interest free banking business in Ethiopia. European Journal of Islamic Finance, (16). https://doi.org/10.13135/2421-2172/4036
[3]	Birr Metrics. (2025 c, November 1). Central bank lifts credit cap but only for interest-free banks. https://birrmetrics.com/central-bank-lifts-credit-cap-but-only-for-interest-free-banks/
[4]	Birr Metrics. (2026 a, February 14). Ethiopia’s interest-free banks “doing quite well” for a system with “no interest.”
[5]	Birr Metrics. (2026 b, February 28). Interest-free banks now command a significant share of the financial market. https://birrmetrics.com/interest-free-banks-now-command-a-significant-share-of-the-financial-market/
[6]	Birr Metrics. (2026 d, June 12). CBE targets half a million new Islamic banking users in nationwide inclusion push.
[7]	Coalition Greenwich. (2025, June 10). Unlocking growth: Islamic finance sees global expansion. https://www.greenwich.com/corporate-banking/unlocking-growth-islamic-finance-sees-global-expansion
[8]	DFS Ethiopia Hub. (2025, June 11). A halal path to Ethiopia’s financial inclusion. https://digitalfinance.shega.co/insights/articles/a-halal-path-to-ethiopia-s-financial-inclusion
[9]	Grokipedia. (2026, January 14). List of banks in Ethiopia. https://grokipedia.com/page/List_of_banks_in_Ethiopia
[10]	Haılu, S. M., & Bushera, İ. (2020). Interest Free Banking in Ethiopia: Prospects and Challenges. Uluslararası İslam Ekonomisi Ve Finansı Araştırmaları Dergisi, 6(2), 119-137. https://doi.org/10.25272/ijisef.678972
[11]	ICD-LSEG. (2024). From niche to norm: Islamic Finance Development Report 2024. Islamic Corporation for the Development of the Private Sector & London Stock Exchange Group. https://icd-ps.org/uploads/files/Islamic%20Finance%20Development%20Report%202024.pdf
[12]	Iqbal, Z., & Mirakhor, A. (2011). An introduction to Islamic finance: Theory and practice (2nd ed.). Wiley.
[13]	Islamic Economist. (2025). Interest-free banking in Ethiopia. https://islamiceconomist.com/?p=2497
[14]	Mohammed, A., & Beshir, H. (2020). Interest-free banking in Ethiopia: Prospects and challenges. International Journal of Islamic Economics and Finance Studies, 6(1), 45-62.
[15]	MTA Legal Update. (2025). Developments in Ethiopia’s capital market. Mesfin Tafesse & Associates. https://mtalawoffice.com/insights-news/entry/developments-in-ethiopia-s-capital-market
[16]	MultiLink Consulting-Investment. (2025, October 23). Ethiopian banking and finance. https://www.multilinkconsult.com/portfolio/ethiopian-banking-and-finance/
[17]	National Bank of Ethiopia. (2019). Directive to license and authorize interest-free banking business (Directive No. 608/2021, 1st Replacement). National Bank of Ethiopia.
[18]	National Bank of Ethiopia. (2021). National Financial Inclusion Strategy II 2021-2025.
[19]	Rengasamy, G. K. (2025). Interest free banking and Ethiopia. International Journal of Research Publication and Reviews, 6(9), 649-654. https://ijrpr.com/uploads/V6ISSUE9/IJRPR52544.pdf
[20]	Reshad, H., Ibrham, Y., & Negasa, W. (2022). Settlement of interest-free banking disputes under Ethiopia banking law: A comparative study. Jimma University Institutional Repository.
[21]	Salaam Gateway. (2024, October 29). Islamic finance: East Africa presents opportunities amid ecosystem challenges.
[22]	Shega. (2025, June 11). A halal path to Ethiopia’s financial inclusion. https://shega.co/news/a-halal-path-to-ethiopias-financial-inclusion
[23]	Yimam, A. A. (2025). The introduction of interest-free banking in Ethiopia: Regulatory and supervisory perspectives. Ethiopian Legal Studies Association.

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APA Style

Kassaye, A. T. (2026). Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. International Journal of Finance and Banking Research, 12(4), 84-88. https://doi.org/10.11648/j.ijfbr.20261204.11

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ACS Style

Kassaye, A. T. Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. Int. J. Finance Bank. Res. 2026, 12(4), 84-88. doi: 10.11648/j.ijfbr.20261204.11

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AMA Style

Kassaye AT. Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. Int J Finance Bank Res. 2026;12(4):84-88. doi: 10.11648/j.ijfbr.20261204.11

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@article{10.11648/j.ijfbr.20261204.11,
  author = {Abebe Tilahun Kassaye},
  title = {Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia},
  journal = {International Journal of Finance and Banking Research},
  volume = {12},
  number = {4},
  pages = {84-88},
  doi = {10.11648/j.ijfbr.20261204.11},
  url = {https://doi.org/10.11648/j.ijfbr.20261204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20261204.11},
  abstract = {Interest-free banking and finance (IFB) has evolved from a marginal regulatory accommodation into an increasingly significant segment of Ethiopia’s financial sector within little more than a decade. This paper presents a market landscape and gap analysis of Ethiopia’s IFB industry, examining its institutional evolution, market structure, regulatory architecture, growth trajectory, opportunities, and persistent structural challenges. Drawing on the National Bank of Ethiopia’s Financial Stability Reports, recent regulatory directives, institutional reports, and industry evidence, the analysis indicates that deposits under IFB services reached ETB 379.1 billion by June 2025, supported by nine fully fledged institutions and 48 window-based providers across the banking, microfinance, and insurance sectors. Despite this substantial expansion, significant gaps remain in capital-market depth, Sharia-compliant liquidity-management instruments, financing-to-deposit conversion, technological capacity, specialized human capital, product diversification, and Shariah governance. The evolving regulatory and financial-market environment, including Banking Business Proclamation No. 1360/2025 and the establishment of the Ethiopian Securities Exchange, presents opportunities for developing Sukuk, Takaful, and other innovative IFB products. The reviews suggest that IFB represents an underexploited pathway for enhancing financial inclusion, particularly among Ethiopia’s Muslim population. However, sustainable growth requires stronger regulatory parity, improved liquidity infrastructure, enhanced Shariah-compliant capital-market instruments, greater technological and human-resource capacity, and increased consumer awareness. Coordinated action among regulators, financial institutions, researchers, and industry stakeholders is therefore essential for developing a resilient, inclusive, and competitive IFB ecosystem in Ethiopia.},
 year = {2026}
}

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TY  - JOUR
T1  - Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia
AU  - Abebe Tilahun Kassaye
Y1  - 2026/09/20
PY  - 2026
N1  - https://doi.org/10.11648/j.ijfbr.20261204.11
DO  - 10.11648/j.ijfbr.20261204.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 84
EP  - 88
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20261204.11
AB  - Interest-free banking and finance (IFB) has evolved from a marginal regulatory accommodation into an increasingly significant segment of Ethiopia’s financial sector within little more than a decade. This paper presents a market landscape and gap analysis of Ethiopia’s IFB industry, examining its institutional evolution, market structure, regulatory architecture, growth trajectory, opportunities, and persistent structural challenges. Drawing on the National Bank of Ethiopia’s Financial Stability Reports, recent regulatory directives, institutional reports, and industry evidence, the analysis indicates that deposits under IFB services reached ETB 379.1 billion by June 2025, supported by nine fully fledged institutions and 48 window-based providers across the banking, microfinance, and insurance sectors. Despite this substantial expansion, significant gaps remain in capital-market depth, Sharia-compliant liquidity-management instruments, financing-to-deposit conversion, technological capacity, specialized human capital, product diversification, and Shariah governance. The evolving regulatory and financial-market environment, including Banking Business Proclamation No. 1360/2025 and the establishment of the Ethiopian Securities Exchange, presents opportunities for developing Sukuk, Takaful, and other innovative IFB products. The reviews suggest that IFB represents an underexploited pathway for enhancing financial inclusion, particularly among Ethiopia’s Muslim population. However, sustainable growth requires stronger regulatory parity, improved liquidity infrastructure, enhanced Shariah-compliant capital-market instruments, greater technological and human-resource capacity, and increased consumer awareness. Coordinated action among regulators, financial institutions, researchers, and industry stakeholders is therefore essential for developing a resilient, inclusive, and competitive IFB ecosystem in Ethiopia.
VL  - 12
IS  - 4
ER  -

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Author Information

Abebe Tilahun Kassaye

Department of Accounting and Finance, Werabe University (WRU), Werabe, Ethiopia

Contact Email

http://orcid.org/0000-0003-3681-6813

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APA Style

Kassaye, A. T. (2026). Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. International Journal of Finance and Banking Research, 12(4), 84-88. https://doi.org/10.11648/j.ijfbr.20261204.11

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ACS Style

Kassaye, A. T. Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. Int. J. Finance Bank. Res. 2026, 12(4), 84-88. doi: 10.11648/j.ijfbr.20261204.11

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AMA Style

Kassaye AT. Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia. Int J Finance Bank Res. 2026;12(4):84-88. doi: 10.11648/j.ijfbr.20261204.11

Copy | Download

@article{10.11648/j.ijfbr.20261204.11,
  author = {Abebe Tilahun Kassaye},
  title = {Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia},
  journal = {International Journal of Finance and Banking Research},
  volume = {12},
  number = {4},
  pages = {84-88},
  doi = {10.11648/j.ijfbr.20261204.11},
  url = {https://doi.org/10.11648/j.ijfbr.20261204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20261204.11},
  abstract = {Interest-free banking and finance (IFB) has evolved from a marginal regulatory accommodation into an increasingly significant segment of Ethiopia’s financial sector within little more than a decade. This paper presents a market landscape and gap analysis of Ethiopia’s IFB industry, examining its institutional evolution, market structure, regulatory architecture, growth trajectory, opportunities, and persistent structural challenges. Drawing on the National Bank of Ethiopia’s Financial Stability Reports, recent regulatory directives, institutional reports, and industry evidence, the analysis indicates that deposits under IFB services reached ETB 379.1 billion by June 2025, supported by nine fully fledged institutions and 48 window-based providers across the banking, microfinance, and insurance sectors. Despite this substantial expansion, significant gaps remain in capital-market depth, Sharia-compliant liquidity-management instruments, financing-to-deposit conversion, technological capacity, specialized human capital, product diversification, and Shariah governance. The evolving regulatory and financial-market environment, including Banking Business Proclamation No. 1360/2025 and the establishment of the Ethiopian Securities Exchange, presents opportunities for developing Sukuk, Takaful, and other innovative IFB products. The reviews suggest that IFB represents an underexploited pathway for enhancing financial inclusion, particularly among Ethiopia’s Muslim population. However, sustainable growth requires stronger regulatory parity, improved liquidity infrastructure, enhanced Shariah-compliant capital-market instruments, greater technological and human-resource capacity, and increased consumer awareness. Coordinated action among regulators, financial institutions, researchers, and industry stakeholders is therefore essential for developing a resilient, inclusive, and competitive IFB ecosystem in Ethiopia.},
 year = {2026}
}

Copy | Download

TY  - JOUR
T1  - Market Landscape and Gap Analysis of Interest-Free Banking and Finance in Ethiopia
AU  - Abebe Tilahun Kassaye
Y1  - 2026/09/20
PY  - 2026
N1  - https://doi.org/10.11648/j.ijfbr.20261204.11
DO  - 10.11648/j.ijfbr.20261204.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 84
EP  - 88
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20261204.11
AB  - Interest-free banking and finance (IFB) has evolved from a marginal regulatory accommodation into an increasingly significant segment of Ethiopia’s financial sector within little more than a decade. This paper presents a market landscape and gap analysis of Ethiopia’s IFB industry, examining its institutional evolution, market structure, regulatory architecture, growth trajectory, opportunities, and persistent structural challenges. Drawing on the National Bank of Ethiopia’s Financial Stability Reports, recent regulatory directives, institutional reports, and industry evidence, the analysis indicates that deposits under IFB services reached ETB 379.1 billion by June 2025, supported by nine fully fledged institutions and 48 window-based providers across the banking, microfinance, and insurance sectors. Despite this substantial expansion, significant gaps remain in capital-market depth, Sharia-compliant liquidity-management instruments, financing-to-deposit conversion, technological capacity, specialized human capital, product diversification, and Shariah governance. The evolving regulatory and financial-market environment, including Banking Business Proclamation No. 1360/2025 and the establishment of the Ethiopian Securities Exchange, presents opportunities for developing Sukuk, Takaful, and other innovative IFB products. The reviews suggest that IFB represents an underexploited pathway for enhancing financial inclusion, particularly among Ethiopia’s Muslim population. However, sustainable growth requires stronger regulatory parity, improved liquidity infrastructure, enhanced Shariah-compliant capital-market instruments, greater technological and human-resource capacity, and increased consumer awareness. Coordinated action among regulators, financial institutions, researchers, and industry stakeholders is therefore essential for developing a resilient, inclusive, and competitive IFB ecosystem in Ethiopia.
VL  - 12
IS  - 4
ER  -

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