Featured | Oct 19,2019
Aug 10 , 2025
By RUTH BERHANU ( FORTUNE STAFF WRITER )
Salhadin Khalifa knows that every shareholder wants to see rewarding returns. As a founding shareholder in ZamZam Bank since 2021, the country’s pioneering fully fledged interest-free bank, he sees the newly minted capital market as a golden opportunity.
“After all, we want to sell and make a profit,” he said. “Every shareholder wants to make more profit.”
Then comes the pause, and a caveat he has learned to repeat. More than one-third of Ethiopians prefer non-interest banking alternatives, yet the national financial toolkit, from Treasury bills (T-bills) to equity instruments, rests on interest-based principles. That leaves legally recognised interest-free banks sitting on the sidelines of recent monetary and fiscal policy reforms they were told would be for everyone.
“The National Bank needs to implement policies that are Shari’ah-compliant,” said Salahadin.
The faster fully fledged banks become part of the macroeconomic reform, he argues, the better it will be for shareholders such as him.
“It's better if it does not take time," he told Fortune. "We need a decision.”
“Structural change has arrived, but its benefits aren’t shared.” Melika Bedri President ZamZam Bank S.C.
A recent study amplifies his concern. Conducted by Elizabeth Terefe of Admas University, the study warns that interest-free banks remain sidelined, even as policymakers push through macroeconomic reforms and open the capital market. The researcher examined the evolving industry of Islamic finance, with a focus on ZamZam Bank. Demand is rising, she argued, but design flaws and policy gaps hold the segment back.
The launch of the capital market, a milestone in itself, also demonstrated the exclusion. Commercial banks and private investors have begun using new instruments; however, Shari’ah-compliant products are not yet available, thereby excluding Islamic institutions from these channels.
Bankers lend a practical edge to the analysis.
“We’ve discussed this with the Ethiopian Capital Market Authority (ECMA), but there is still a knowledge gap,” said Ali Ahmed, president of Rammis Bank, another fully fledged interest-free bank. “Islamic banks aren’t able to utilise the market like conventional banks can.”
For Salhadin, his stake in ZamZam is about more than dividends. It is about trust.
“We rely on the bank,” he said, stressing that shareholders are not passive investors but people deeply vested in a model built on shared religious and ethical foundations.
Inside ZamZam Bank, the tone is measured, but the message remains the same. According to Melika Bedri, ZamZam's president, policy reforms introduced by the National Bank of Ethiopia (NBE), such as T-bills and interbank markets, have brought structural change. The problem is their design. Because these instruments bear interest, they are incompatible with Shari’ah-compliant principles and cannot be used by Islamic banks to deploy liquidity efficiently.
ZamZam has stayed active in foreign exchange auctions, using them to stabilise earnings and manage assets. The Bank considers this helpful, but not a substitute for a proper suite of compliant tools. However, Melika sees dialogue is moving. Interest-free banks are sitting with regulators, notably the ECMA and the Central Bank, to help draft new directives that can accommodate Shari’ah-compliant instruments.
The gap, though, remains large. Melika, a former vice president of the state-owned Commercial Bank of Ethiopia (CBE), pointed to the absence of Sukuk (Shari’ah-compliant bonds), Islamic treasury bonds, or dedicated non-interest money markets and says the impact is real.
According to Ali, the Central Bank has signalled its intention to introduce Sukuk within the next six months, and he welcomes the plan. But for him, timing is everything.
“The bank transfers and transactions being made today are already in the billions," he told Fortune."We haven’t been able to tap into that as interest-free banks.”
He wants to see closer integration between the interest-free windows operated by conventional banks and the full-fledged Islamic banks.
“If a mechanism had already been established for the windows to work in harmony with us, we could have capitalised on more of these reforms. Every missed opportunity counts,” Ali told Fortune.
The hope is that the new products could draw capital from excluded investors who have had no compliant doorway into the system. Beyond products, an enabling ecosystem matters, that is, well-trained regulators, harmonised legal frameworks and strong public-private partnerships. Melika praised regulators for their openness, attributing recent directives to a deeper understanding of the financial sector’s potential.
“Without proper tools, capital remains idle, curbing intermediation and limiting development contributions,” she said, seeing the current climate as a turning point. “With reforms deepening and infrastructure needs rising, the time is ripe to launch inclusive investment tools.”
From the regulator’s side, the outlook is more upbeat. Sirak Solomon, senior advisor at ECMA, says interest-free banks have distinct competitive advantages, and a more straightforward path is coming into view. They can compete effectively in the capital market by leveraging their unique position in offering Shariah-compliant and ethical financial products that appeal to a growing base of retail and institutional investors. ECMA plans to launch an Islamic Capital Market branding initiative to certify Islamic instruments and give them credibility in the eyes of investors.
“Institutional backing, including the establishment of the Islamic Finance Task Force under the national roadmap, will support product development, regulatory reform, and coordinated industry growth,” he said.
With instruments like Sukuk, they can channel funds into infrastructure and socially impactful projects, mobilising capital in line with an agenda of ethical finance and inclusive growth. ECMA officials disclosed that a broader roadmap is underway to make participation a reality, not simply rhetoric. This includes enabling access to equity markets, mutual funds, and Sukuk offerings, as well as allowing advisory services through dedicated financial subsidiaries.
The Authority, under Hana Tehelku, is preparing to launch a Central Shari’ah Advisory Board to validate products and harmonise rules. In parallel, it is conducting tax and legal reviews to address policy misalignments, eliminating structural inefficiencies, and introducing a pilot Sukuk programme within the next 12 to 18 months as part of a push for a more diversified and inclusive market.
“Interest-free banks are poised for growth, provided they get the right framework,” Sirak told Fortune.
Between the promises and the pilots sit obstacles that bankers describe as everyday barriers. Elisabeth's research revealed how financial institutions like ZamZam have mobilised deposits and widened outreach, yet misaligned regulations still narrow their options. Double taxation of Shari’ah-compliant contracts and ambiguity in dispute resolution weigh on growth and competitiveness. A particular pinch point is double VAT on asset-based financing, a common structure in Islamic banking.
“When we finance a customer, we first buy the asset in our name and then pass it to the customer,” said Dawit Keno, president of Hijra Bank, another Sharia-compliant financial institution. “We're taxed twice on the same item. VAT should be exempted.”
Dawit wants the Central Bank to embed parity between models by creating a dedicated interest-free banking department and a national Shari’ah board. Such bodies, he believes, would bring ethical and technical expertise to the table and help shape reforms so they work in practice. He also urged liquidity placements between interest-free banks as informal and inconsistent, a sign, he says, that a system-based approach is overdue.
Regulators at the NBE acknowledge the core problem.
“Islamic banks operate under a different model, and interest-based instruments create major roadblocks,” said Solomon Desta, vice governor.
He confirmed that NBE is developing a regulatory framework that accommodates the logic of interest-free institutions. That acknowledgement matters to bankers, but they still count the cost of delays. Melika puts it in simple terms.
“Structural change has arrived, but its benefits aren’t shared,” she said.
Girum Amha, an economist, widens the lens. Even with better rules, he observed, practice will not always follow. Some bonds are issued by businesses in sectors such as alcohol, which conflict with Shari’ah ethics. That complicates participation in capital-market deals.
“While investment advisory services are emerging, T-bills and other tools remain off-limits due to their structure,” he said.
He proposes interest-free liquidity instruments designed to meet reserve requirements without resorting to interest.
“Substantial sums move overnight to meet reserve requirements," he said. "Because these transactions are interest-based, Islamic banks are excluded.”
Girum argued for representation in financial policymaking and called the interbank market a missed opportunity.
“To remain resilient, not just present, Shari’ah-compliant institutions need structured access to funding that respects their principles,” he told Fortune.
As interest-free banks stand ready to unlock capital they say has been sitting on the sidelines, the refrain from the people who own them is not hard to understand. For Salhadin and thousands of shareholders like him, the idea is straightforward. He wants a market where finance can be aligned with faith, growth with equity, and reform with inclusion. He says he is not asking for special treatment, but rather a framework that acknowledges how his bank conducts business, and the tools to make that business work within the evolving financial architecture.
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