Interest free banking refers to a system of banking operation that is more or less consistent with the Sharia law.
Basically, it is guided by the economic principles of Islamic religion. Accordingly, it is significant to know that interest free banking forbids the collection and payment of interest which is mainly derived from the Islamic discourse.
Furthermore, this type of banking business prohibits investing in commercial activities that are considered unlawful and immoral in the eyes of the Islamic religion. These include but not limited to businesses that sell alcohol and the like, which are contrary to Islamic values. The interest free banking business showed profitability even though participated in selected activities.
According to literatures, the history of interest free banking existed for so many years as an idea through the Islamic discourse. Later on; it became a reality by private initiative through commercial business platforms. In line with this, the Ethiopian legal system acknowledges the interest free banking business very recently even though it was familiar as an interest free baking window through the common commercial bank structures. Even recently, the largest state owned bank in the country, Commercial Bank of Ethiopia, and other private banks as well have commenced branches that are fully engaged with interest-free banking operations.
Institutionalized interest free banking system has a very recent origin especially in Ethiopia. In recent years the interest free banking system attracted more attention. In this regard, Zamzam Bank, Zad Bank and Hijira Bank is the main interesting free banks that coming to the Ethiopian financial market. Their implications will be seen after being operational in the economy.