CHALLENGES AND PROSPECTS OF ISLAMIC BANKING FOR RESOURCE MOBILIZATION IN ETHIOPIAN COMMERCIAL BANKS

Abstract

The recent development of starting Islamic banking service in one window in connection with conventional banking service made to examine the challenges and prospects of Islamic banking service for resource mobilization in Ethiopian commercial banks. The study was conducted based on data collected from staffs of the three banks through questionnaires. To achieve the objectives of the study respondents were drawn from one government and two private commercial banks since they started the service early. Data was collected through questionnaire by using stratified sampling from a sample of 394 and 313 were properly filled and returned. Besides, Semi-structured interview were used to guide for the qualitative data collection tools. The data collected from the questionnaire were analyzed using SPSS version 20 statistical tools such as percentages and mean followed by interpretation. The study focuses that awareness, manpower, legal framework, societal belief, resource requirements as some of the challenges while economic growth, attraction of investors, and fostering investment are the likely prospects of the banks. The study concludes that Islamic banking service will bring additional capacity in the economy in connection with additional resource for banks, investment opportunity, reaching unbanked customers and employment opportunities in the country through effective mobilization and allocation of capital. Based on the above conclusions it is recommended that banks need to create awareness for public acceptance and training of staffs, employ good marketing techniques, governing body need to establish clear set of legal framework, and compliance with sharia issues should be adhered.