Ethiopia: Oromia International Bank received the first and only license to operate Islamic banking

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Oromia International Bank (OIB), one of the most recent yet popular private financial institutions, has become the first to implement interest-free banking [Islamic banking] in the country since the National Bank of Ethiopia (NBE) issued a directive to banks allowing them to provide the service using a separate window along with their other banking services in the country.

The financial sector in Ethiopia has been operating in the country for over a century but interest-free banking had never been practiced even though it is popular, not only in Islamic countries, but in many parts of the world.
On Thursday, September 16 2013, the regulatory body of financial institutions, NBE, issued the first and only license of its type to OIB for the launching of this unique service. Abi Sano, President of OIB, told Capital that when OIB was still under formation it lobbied future shareholders on the promise to introduce interest-free banking services, which had never been implemented in the country before, but when it commenced operations, it was unable to deliver on its promise because the NBE was in the process of working out the details of the directives that would enable financial institutions to apply the service. According to experts, the formation of Islamic banking under the bank is like forming a new bank, because the service provided is quite separate from the conventional banking system.
“We have been the first bank to send our application to NBE to commence the service since NBE issued detailed directives a year ago,” Abi said.
Abi, the first and current president of Oromia International Bank, said that they developed a detailed proposal document which they submitted to the central bank to get the permit. “Interest-free banking is quite new to the country; due to that fact, we had to demonstrate how prepared we were in terms of operational strategy to the regulatory body,” he explained.

Policies, procedures, products, implementation strategy and risk management are some of the main points taken into consideration by NBE during the evaluation process. According to the president, Islamic banking is not like launching one service under the bank. “It means forming an additional independent financial institution under the bank; therefore, it needs more preparation and a different and separate office that operates the interest-free banking,” he explained.

“Since our application, we have been carrying out preparations to commence operations, which we will start within three weeks,” he added.
“We will have a head office that is exclusively dedicated to interest-free banking and operate the service in branches using independent windows,” he said.
According to the president, the bank has also plans to open a fully dedicated interest-free branch in Merkato, the biggest market center in the country.

The president told Capital that the bank will introduce several Islamic-banking products. Fund mobilization, financing and investment, known as credit service in conventional banking, and trade service, which is an international banking service also in conventional banking, are some of the basic schemes that will be introduced.
Zemzem Bank, which was under formation to operate Islamic banking with non-conventional services, collapsed because of NBE’s directives that indicated that the service must be provided as another service using a separate window along with other conventional banking services.

OIB purchased SA building
In a related development, OIB has purchased the 13 storey SA building at a cost of 210 million birr to relocate its headquarters from the building ¬¬it currently rents – the ¬Biftu Building – in front of the Commerce College, around the National Theater.
The bank, established by around 5,000 shareholders five years ago had previously acquired a compound around the Ministry of Health for the construction of its future headquarters.
The president disclosed that the bank has now bought a new building on Africa Avenue (Bole road) for its headquarters until it completes the construction of its future headquarters.
“The construction may take some time; until then we decided to buy our own building rather than rent one,” the president said. He indicated that the rent was extremely high, which led them to the decision to buy a building. Abi said they negotiated with the owners of five different buildings before settling on SA Building. According to the bank, it will move to the new building within the next three months. The building was previously owned by two brothers, Salhadin Abubaker and Abdulhamid Abubaker, businessmen and owners of Garad Plc.

In the past fiscal year (2012/13), OIB’s earnings reached an unaudited profit of 102 million birr, a 56.4 percent increase over the preceding year.
The bank’s savings amount stands at 3.1 billion birr, a 44 percent increase from the previous year, and its total capital has reached 600 million birr in the 2012/13 fiscal year.

OIB was established October 25, 2008 and has 68 branches in Addis and all over the country and has set a target to open an additional 40 branches during the current fiscal year.

By Muluken Yewondwossen, CapitalEthiopia.com