SHARIA-COMPLIANT BANKS WIN REPRIEVE, AWAIT REFORM

Nov 2 , 2025.

The National Bank of Ethiopia (NBE) has scrapped the credit-growth ceiling that had stifled the four fully Sharia-compliant banks for more than two years. The reversal frees these banks from a rule that had previously limited their annual loan expansion across the industry as they sought to establish themselves in a market dominated by interest-based finance. Born out of the 2019 law, the quartet - ZamZam, Hijira, Shabelle and Rammis - operates under Islamic principles that forbid charging or paying interest, cutting them off from the government bond, Treasury bill and interbank markets that other banks depend on for liquidity. Without alternative instruments, they have struggled to balance deposits and financing, and the cap compounded their difficulties by choking off loan-book growth.

Central Bank officials insisted that the waiver is temporary and designed to keep the segment afloat while Sharia-compliant instruments are developed, allowing all banks, both conventional and Islamic, to trade government securities and tap wholesale funding without interest. These banks account for less than one percent of total credit, prompting regulators to argue the exemption will not undermine their efforts to curb inflation. The ceiling, introduced in 2023 at 14pc and lifted to 24pc early this year, was targeting cooling prices, but Islamic banks say it was a double blow. They already lack profitable, low-risk assets and cannot hedge liquidity shocks. Their profit-sharing model, which involves buying goods for clients rather than disbursing cash, was never thought to inject credit into the economy at the same pace as conventional lending.

Sharia-compliant bank executives hail the lifting as a window to lend more, open branches and reach underserved communities, yet warn it cannot substitute for a durable framework of Sharia-compliant bonds and money-market tools. They contend that a level playing field will only emerge when those instruments are in place. Analysts agree the gesture may prove modest. Interest-free deposits were under a quarter of a trillion Br, less than a tenth of the national total, by June 2024 and supported only about 50,000 credit accounts. The wider system’s outstanding loans are projected to climb from 2.2 trillion to 2.6 trillion Br by next June after a 5.4pc rise in the three months to August this year. Without faster deposit mobilisation, observers say, even a cap-free environment will leave Islamic banks growth-constrained, and the real breakthrough will come only when Sharia-compliant bonds hit the market.

PUBLISHED ON Nov 02,2025 [ VOL 26 , NO 1331]