According to a statement issued June 2 by its board of directors, Zam-Zam Bank applied for a zero-interest banking service compatible with Muslims.
However, the National Bank of Ethiopia, which supervises all banks in the country and is directly under prime minister Meles Zenawi, declined to assent to the application.
The Ethiopian government last year issued a new banking law which outlaws interest-free Islamic banking and authorises authorities to block money suspected to finance terrorism.
The refusal to licence the service also douses the hopes of 6,800 shareholders of establishing a new Islamic bank after years of dispute with the National Bank.
The “interest-free” banking project with an initial capitalisation of $57 million will now be forced to dissolve.
“They told us it is impossible to establish a full ‘zero interest rate’ bank and rather advised us to create a sub-window to give the zero-interest rate service along with a regular banking operation,” a board member, who declined to be named due to his dealings with another private bank, told the Africa Review’s reporter.
The potential liquidation of Zam-Zam coincides with growing rancour between the government and the country’s Muslims over the last four months.
Since March, Muslims in the Horn of Africa country have been protesting government interference in affairs of their religion.
The Ethiopian government has recently tightened security and accused some Muslim groups of favouring extremism and terrorism under the cover of religious freedoms.
After Zam-Zam Bank two years ago applied for a licence, the government issued a revised Banking Bill which excludes the formation of a banking service affiliated to religion.
The revised law on grounds of blocking the flow of “terror financing” authorises the government to access details of any suspected money transfer deposit or other transaction.
Mr Ibrahim Miftah, a financial expert, said such kind of interest free banks are viable in Islamic economics and operate in accordance with Sharia.
“The idea is developed by modern scholars of Islam and seeks not only to enforce Islamic regulations but also to implement broader economic goals and policies,” Mr Ibrahim said.
Muslim banking revolves around the main tenets of Islam; charitable giving (zakat), borrowing and lending without payment of fixed interest (riba), insurance, inheritance, and socially responsible investing.
Since most other religions also favour charitable giving and socially responsible investing, the key difference from other financial services is the non interest rule.
At least 60 countries practice Islamic banking, mainly in the middle East countries.
Ethiopia has so far licensed 15 private banks.
Culled: Africa Review