Zamzam becomes first recognized Islamic Bank

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Shareholders of the previously defunct Zamzam Bank raised their voices during the first extraordinary general assembly held at the Addis Ababa Exhibition Center on June 2, 2012. The bank got the green light from the National Bank of Ethiopia (NBE) after seven years. Pictured here are some of the previous shareholders who complained that NBE’s 2012 decision is against the country’s constitution that allow citizens to involve in any business.

During the Islamic holy month of Ramadan the Ethiopian Islamic community received miraculous news from the National Bank of Ethiopia (NBE), the financial regulatory body, to resurrect the formation of Zamzam Bank, the under formation first full-fledged interest free banking institution.
Sources told Capital that during a meeting held on Wednesday May 22 between the organizing committee members of Zamzam and Central Bank officials, Yinager Dessie, Governor of NBE, allowed Zamzam to undertake the formation process. The green light came on the same day that PM Abiy Ahmed, who attended the massive Grand Iftar evening organized by the Ethiopian Islamic Affairs Supreme Council, announced that the government will allow interest free banking in the country.
Even though the case started immediately after the Banking Business Proclamation authorizing the establishment of interest-free banking in 2008, Zamzam was officially launched founding share sales in December 2010, and within a short period the organizing committee has been successfully amassed more than the proposed 250 million birr capital. Before the first general assembly held in April 2011 the actual collection was 330 million birr.
Even though the under formation bank raised a significant amount of money within a few months and concluded the first general assembly effectively the pioneer non conventional bank could not open a single door for operation because the NBE directive was ratified in September 2011, barring Islamic banking.
The late directive to override the 2008 Banking Business Proclamation stated that Islamic banking operations are permissible only as part of other services and thus a fully Islamic bank was not allowed.
The situation forced the then board of directors to call the first extraordinary meeting to disclose the situation to shareholders. On the occasion the board of directors of Zamzam told shareholders that the board held several discussions about the future of the bank before it called the extra ordinary assembly that was held on Saturday June 2, 2012.
They said that in the past nine months the board members conducted several discussions with government and NBE officials to get an Islamic banking permit but to no avail. “We have also written a letter to the then PM Meles Zenawi to get solution on the issue but we did not get any response,” the board of directors explained.
The board has clearly stated that the bank could not continue in that situation and proposed three options for the share holders; under Islamic banking injecting their capital on other banks and open a window, dissolving the bank and disburse back the raised capital or involve on other investment sector with the collected money, while shareholders preferred to get their funds.
But in the meeting most of the shareholders said that NBE’s decision is against the country’s constitution, that allows citizens to involve in any business. “The central bank’s decision is against our rights,” the participants said.
Nassir Dino, who is one of the organizing committee member and member of the first board of directors of the bank, remembered that for the last 12 months they have tried their best to realize the interest free banking, which is common not only in Islamic countries but all over the world.
He said that since the late Prime Minister period “we have tried to convince the government about our mission. We have also written a letter for the former PM but to no avail, but the one thing which is at least better is the Islamic banking scheme is operating in a separate window at conventional banks,” he said.
“We have been working for our country as educated citizen not for sect, religious or group,” Nassir recounts the motive of formation of such kind of financial sector, which is considered as best option on project financing since it focus on business idea than collateral as conventional banks.
“The window has given hopes for us that one day the concept will get acceptance,” he said.
He further noted that the committee has written a letter to PM Abiy immediately after his assignment at his new post as PM. “We would like to appreciate the PM for taking quick action on the matter,” he added.
Sources said that last week the Deputy PM Office evaluated the case of Zamzam and they have called upon them to come up with a brief explanation about their case, while in the middle of this week the committee met with the governor and obtained permission.
“The cost we lost is uncounted compared with the harassment including the life threat we faced related to our activity,” Nassir told Capital. He confirmed their meeting with the governor but declined to give further information about it. “In the coming weeks we will have concrete information regarding our future activity but for now we cannot talk details,” he added.
Experts in the financial industry and religious scholars claimed that the government previously misunderstood the concept of Islamic banking.
Currently the interest free banking scheme is done at a separate window at ten banks, and over 30 billion birr has been mobilized.
Asfaw Alemu, President of Dashen Bank, told Capital that initially the sector was not neglected since it is successful in other countries. “For instance other countries including neighbor states are practicing interest free banking but I don’t know the reason why it is not allowed here, the central bank should answer that,” Asfaw explained.
“We are currently working under a separate window by the support of Sharia advisory committee, which is like a board that follows the operation of interest free banking,” he said.
Experts said if the study was properly done and applied to the business it would be beneficial and would create a good opportunity for competition.