A software developed by Azentio, a technology firm headquartered in Singapore, which is tailored for Islamic retail, corporate, and investment banking operations has been adopted by Rammis Bank, a new financial institution in Ethiopia with a focus on providing sharia-compliant products and services.
The predominantly Christian orthodox Ethiopia, which is one of Africa’s biggest economies, is home to a sizeable Muslim minority. According to estimates some 34% of the country’s 113.6m people profess Islam as their faith. Islam sanctions usury and therefore interest is considered haram (prohibited). The Islamic financial system, therefore, works on the principle of sharing profits and risks but not interest. Azentio's iMAL software suite has been designed to adhere to the demands of sharia law. Azentio is led by the Singapore-based Australian CEO Tony Kinnear, and what is remarkable is that for firm that has developed a sharia-complaint software, its leadership team is almost entirely non-Muslim.
Rammis Bank aims to fill a gap in the market by catering to those often overlooked by traditional financial systems due to religious beliefs. The initial phase of the software implementation included the branch automation and retail banking modules, a step that has paved the way for Rammis to officially begin operations. The subsequent phase of the iMAL deployment will comprise modules related to Islamic financing, trade finance, and SWIFT payments, among others.
The launch of the new bank coincides with significant changes in Ethiopia's financial industry. Although Zam Zam Bank was the first institution to offer financial services to Muslims in Ethiopia, it was only in 2020 that full-fledged Islamic financial service was permitted in the country. The most significant hurdle to Islamic finance in Ethiopia comes from the commercial code of the Ethiopian-legal framework, which restricts banks from holding more than 10% equity in any business activity that is interest-free. Nonetheless, the banking sector in Ethiopia is moving towards greater liberalisation. Last month Ethiopia revealed plans to issue up to five banking licenses to offshore players over the next five years. Prime Minister Abiy Ahmed's administration has pledged to liberalise sectors previously closed to foreigners in a bid to stimulate competition, boost hard currency inflows, and generate employment opportunities.
It is estimated that 40% of Ethiopia's 120m inhabitants remain underserved by banking services, signaling considerable growth potential in the sector. Multiple international lenders have expressed intent to penetrate this frontier market. Among these, several from neighbouring Kenya have displayed notable enthusiasm. For instance, the Kenya Commercial Bank (KCB) is reportedly engaged in negotiations to acquire stakes in Ethiopian lenders, while Equity Bank established a representative office in 2019. However, such offices are restricted from conducting direct banking business such as accepting deposits or issuing loans. Other financial institutions that have set up representative offices in the country include South Africa's Standard Bank and Morocco's Bank of Africa. The arrival of Chinese banks is also anticipated, particularly to address the foreign currency shortages experienced by Chinese businesses operating in Ethiopia.
Ethiopia's banking sector has over two dozen locally owned private banks. However, the state-owned Commercial Bank of Ethiopia continues to hold a dominant position within the industry. In the 2022 financial year, Ethiopian banks recorded a 25.7% rise in deposits, a 48.6% boost in loan collections, and a 29.9% increase in loan disbursement. This period also witnessed the opening of 1,600 new branches, thereby increasing the total number of outlets to 8,944.
‘Equity Bank enters Ethiopia’, Equity Group, 13 June 2019
‘A peek at foreign banks’ appetite in Ethiopia’, The Reporter, 26 November 2022
‘KCB Group talks with potential targets in plan to enter Ethiopia’, Bloomberg, 04 April 2023
‘Ethiopia to offer up to five banking licenses to foreign investors’, Reuters, 04 May 2023
‘Azentio Software’s iMAL is now live at Rammis Bank, Ethiopia’, Azentio, 25 May 2023
‘New Islamic bank joins Ethiopian financial sector’, New Business Ethiopia, 01 June 2023
‘Azentio iMAL Islamic Banking’, Azentio, Accessed 10 June 2023
‘National Bank of Ethiopia Annual Bulletin’, National Bank of Ethiopia, Accessed 11 June 2023
‘Kenyan lenders can now buy up to 30pc stake in Ethiopia banks’, The Sunday Standard, 25 September 2022ISLAMIC FINANCE IN ETHIOPIA: CURRENT STATUS, PROSPECTS AND CHALLENGES, Suadiq Mehammed Hailu and Nissar Ahmad Yatoo, International Journal of Islamic Banking and Finance Research, 2021