The effectiveness of the window model in interest-free banking: The case of Ethiopia

Globally, interest-free finance has been getting a momentum to expand in size and coverage. Various banking and financing products have been developed. In shaping the structure of the banking, three types of model have emerged in the last couple of decades. The first one is the full-fledged model in which the bank establishes an independent management, raises a segregated capital and develops Shariah-compliant banking and financing products. The second one is a Subsidiary IFB Model. This model is introduced by conventional banks by establishing a semi-autonomous structure to offer Shariah-compliant banking and financing services. Even though its management is different from the conventional one and has a segregated capital, it belongs to the parent conventional bank. The third one is a window model under which conventional banks offer Shariah-compliant services. The window model has been developed in some non-Muslim majority countries. However, it is criticized as not a Shariah-compliant system since its financing and management is higher attached to the conventional stream. With its limitations, Ethiopia is one of the countries which introduced it since 2013. since then, 10 local commercial banks have introduced it and able to raise more than a billion dollars' fund from the Shariah-compliant products. In this study, the effectiveness of the window system is assessed. First, its expansion throughout the world is presented in comparison to the others. Moreover, a survey based on random sampling was conducted to assess the acceptance of the window model in the community. The results show that, even though the model continues to expand, there is a significant discomfort felt for this model in the Muslim community and strong demand for a full-fledged one.