The Role of Interest Free Banking in Development of Ethiopia: In Case of Commercial Bank of Ethiopia in Dire Dawa District

This study investigates the role of interest-free banking in economic development of Ethiopia in case of Commercial Bank of Ethiopia Dire Dawa District. The study was carried out using a descriptive research method. To answer the research questions, the researcher used a quantitative study approach and some qualitative data to establish the role of IFB on Ethiopia’s economic development. The data for the study was gathered through a questionnaire and an interview. CBE customers and employees who use IFB services and work at IFB windows in Dire Dawa City provided data. For disseminating the questionnaire, 387 IFB clients and 100 IFB employees were chosen. Using SPSS version 26 software, the collected data was analyzed using descriptive statistics such as mean, frequency, and percentage and correlation analysis. Based on the findings, it can be concluded that if banks use all available interest-free banking services, IFB has a significant role on Ethiopian economic development, particularly in Dire Dawa City, by increasing savings, encouraging investment, lowering unemployment, and reducing poverty. The findings of the study clearly revealed that CBE’s primary IFB instruments, such as Wadi’ah, Amana, and Mudarabah, promoted economic growth by increasing savings mobilization, promoting investment, reducing unemployment, and poverty reduction. According to the study, lack of financial mobilization can lead to poverty, unemployment, and economic stagnation. Without proper savings mobilization, it is impossible to maintain a sound investment effort. The development of CBE IFB services is contingent on the establishment of a flexible and supervisory framework that promotes a balance between market flexibility and investor protection. The study recommends that the CBE should be more proactive in promoting interest-free banking services, and government, and NBE should be better positioned to lay the groundwork for sound regulatory plat form and support for the expansion of IFB services and products in accordance with Sheriah Law.