PRACTICES AND CHALLENGES OF INTEREST FREE BANKING: THE CASE OF ZAMZAM BANK

Abstract

This study examines practices and Challenges of Interest free banking services in ZamZam Bank with particular reference to Addis Ababa Branches and Head office. The study has employed descriptive research based on questionnaire and interveiw. Of the total sample murabaha financing customers (only customers who get murabaha) and staffs of the bank constitutes 326 and 22 respectively. The data was analysed using descriptive statistics of mean, frequency and percentage. The study focuses that General Practices, Murabaha Application Process, Murabaha financing Eligibility, Murabaha Contract Nature, Challenges and customers perception. The Objective of the Study was to assess the practices and challenges of Murabaha interest free financing in ZamZam bank specifically in selected Branches and Headquarters. Based on the analysis of the obtained data, Key findings showed a strong consensus on the binding nature of Murabaha contracts but confusion regarding asset ownership transfer. Operational challenges included regulatory constraints and staff competency deficits. Notably, some respondents viewed Murabaha as similar to conventional loans, highlighting a disconnect between theoretical Shariah compliance and practical implementation. To attain the objectives of the study respondents were drawn through simple Random sampling were applied. The study concludes that ZamZam Bank’s Murabaha operations exhibit structural strengths in contractual enforceability and equitable service delivery but face systemic challenges in three domains: Customer Understanding: Persistent confusion about ownership transfer mechanics and contract terms highlights insufficient client education, risking misinterpretations that undermine trust in Islamic finance principles. Operational Consistency: Inconsistent application processing timelines and uneven documentation practices reflect procedural ambiguities requiring standardization. Regulatory and Market Environment: Restrictive frameworks constrain market penetration, perpetuating perceptions of Murabaha as a niche product rather than a mainstream alternative to interest-based financing.