Saving and credit cooperatives across the country are racing to begin providing interest-free saving services, particularly in unbanked rural areas and regions with large populations adhering to the Islamic faith.

The cooperatives, under the watch of the Federal Cooperative Agency (FCA), will avail a range of services including Mudarabah, a profit-sharing savings account; Wadiah Yad Amanah, a savings account subject to administrative fees; Qard Al-Hassan, interest-free loans; and Salam, a mode of financing that enables borrowers to pay debts using commodities instead of money, especially well suited to smallholder farmers.

According to data from the Agency, more than 21,000 cooperatives and 131 unions operate in the country with an aggregate capital of over 21 billion Br and some five million members. These institutions disbursed over 3.7 billion Br in loans to under one million borrowers last year.

Cooperatives operating in the Silte Zone of the Southern Regional State were the first to introduce these Sharia-compliant services two years ago as part of a pilot programme. Almost two dozen cooperatives under Nur Saving & Credit Union, which comprises 142 cooperatives, are among those currently offering interest-free services in Silte Zone.

Their efforts, however, have been stalled due to COVID-19, according to Fikadu Tadesse, general manager of Nur.

"We're also encountering a huge gap awareness in the community," said Fikadu.

The cooperatives under the Union have an average of 200 members each, who must deposit a minimum of 30 Br a month to keep their membership. They can take loans up to three times their total deposits with a return period of one year.

"This can be extended under some circumstances," said Fikadu.

Cooperatives in Oromia and Amhara regional states are watching to follow suit, with others in Afar and Somali regional states planning to begin interest-free service in the coming year.

Abdi Gudina Saving & Credit Union, in Adama (Nazareth), Oromia Regional State, is one among these cooperatives. Established in 2007 with a capital of 875,000 Br, it will start providing interest-free financing in the coming months in the city of Adama, availing Mudarabah, a profit-sharing savings account, Wogayehu Tsige, head of the Union, disclosed to Fortune.