The Advantages of Promoting Interest-Free Microfinance Institutions over Interest-Free Banks in Developing Countries: The Case of Ethiopia

Abstract

The major objective of this study is to amplify the advantages of fostering interest-free microfinance (IFM) institutions in Ethiopia. Their economic, social, legal, technological and other upper hands over the other institutions are assessed. Some country-cases are presented, and an analysis is made using a comparative descriptive approach. The results point out that, in developing countries like Ethiopia, IFM institutions are more capable than other interest-free banks (IFB) in reducing poverty, increasing financial inclusion, creating employment opportunities, empowering women and boosting local development. Moreover, they are simple to start, easily manageable, community-based by nature, efficient, and necessitate less technology, infrastructure and human resources than banks. Therefore, in parallel to the expansion of the IFB industry, backing IFM institutions in Ethiopia can benefit the socio-economic development of the country.