The National Bank of Ethiopia is looking for alternatives to traditional treasury bills to accommodate financial institutions that only offer interest-free banking services in accordance with Islamic principles.

Since last year, all banks have been required to allocate 20% of the loans they disburse to purchase treasury bills, with the exception of fully-fledged Islamic banks. However, providers of interest-free banking have been unable to acquire the bills as collecting or paying interest contravenes Sharia principles.

Discussions regarding possible alternatives have occurred since these requirements were established, though industry players say further preparations are needed to propose Sharia-compliant solutions.

“Talks have begun between Hijra Bank and the National Bank to explore the feasibility of introducing alternatives like Sukuk bonds to replace conventional treasury bills,” said Hassen Mohammed, Vice President and Information Sector Director of Hijra Bank.

A senior Zamzam Bank official, who spoke on condition of anonymity, expressed concerns about implementing such systems given Ethiopia’s current economic environment. The lack of an established capital market was cited as a potential hurdle to effectively integrating Islamic financial services into the treasury bill market.