FACTORS AFFECTING OPERATIONAL PERFORMANCE OF INTEREST FREE BANKING SERVICES IN ETHIOPIA: THE CASE OF COMERCIAL BANK IN ETHIOPIA

Abstract

The main objective of this study was to examine the factors affecting operational performance of interest free banking services in Ethiopia: the case of commercial bank in Ethiopia, Haramaya branch. The study has employed descriptive research based on survey and the data are of cross sectional type. The study has used both primary and secondary data which are quantitative and qualitative in nature and have been collected through structured and semi structured questionnaire and interview. In this study, 386 questionnaires were distributed to IFB customers and employees CBE Haramaya branches. The collected data have been analyzed, and interpreted accordingly. In this study, 375 and 9 questionnaires were distributed to IFB customers and employees of the bank respectively. The data was analyzed using descriptive statistics of mean, frequency and percentage using SPSS version 20 software. Both descriptive and inferential statistics (correlation and regression) analysis were used to analyse the data. The analysis confirms there were significant positive relationships capacity of the bank, customer awareness and level of demand with operational performance of interest free banking services. Based on the analysis of the obtained data, found out the performance effects to IFB services as: lack of commitment of the bank, lack of Shariah advisor, lack of supportive regulatory directives, Problem related to Ethiopian Commodity Exchange (ECX) law, lack of capacity to deliver IFB product at full rage, lack of awareness of customer about IFB products, lack of trust and confidence of customers, inadequate marketing and promotion. Accordingly, the following recommendations were forwarded by the researcher based on the results of the findings in conjunction with literature review reflections about IFB products, provide sustainable and continuous training to build the capacity of the manpower, the bank shall increase accessibility of its products with the expected services. The government of Ethiopia should take more proactive efforts to promote Interest free banking services in accordance with customers’ satisfaction. The NBE and the Ethiopian government had better to be in a position to laid dawn sound regulatory plate form and support toward the expansion of IFB services and product in accordance with Sheriah Law.