THE LEGAL FRAME WORK OF INTEREST FREE MICROFINANCE INSTITUTIONS IN ETHIOPIA: A COMPARLATIVE STUDY

Abstract

This study endeavors to examine the legal regulations governing interest-free microfinance institutions in Ethiopia with comparisons of Sudan, Egypt, and Malaysia. The research method employed is comparative doctrinal legal research design, which involves scrutinizing secondary data sources such as black and white documents. The qualitative data was analyzed using content analytical techniques that were consistent with the study's objectives. The findings of this study revealed that Ethiopia's legal framework for interest-free microfinance institutions has significant gaps and differences when compared to Egypt, Sudan, and Malaysia. These differences include the specificity of regulations, variations in regulatory oversight and licensing requirements, and the legal basis for interest-free microfinance. Malaysia stands outwith its dedicated legal framework for Islamic finance principles. Addressing these gaps wouldinvolve considering broader legal frameworks, enhancing regulatory oversight, and aligning with international standards. By doing this, Ethiopia can strengthen its legal framework for interestfree microfinance institutions, promoting access to financial services and local economic growth. Therefore, the legislative structure of interest-free microfinance institutions in Ethiopia exhibits gaps and weaknesses when compared to Sudan, Egypt, and Malaysia. These gaps include the lack of specificity in regulations, variations in regulatory oversight effectiveness and capacity, differences in licensing requirements, and a narrower legal basis. These gaps can pose challenges for interest-free microfinance institutions in terms of compliance, clarity, supervision, and consumer protection. To address these weaknesses, Ethiopia should consider enhancing regulatory capacity, aligning with international standards, promoting collaboration, and expanding the scope of the legal framework. Furthermore, Ethiopia can establish a more robust and effective legal framework that promotes the development and growth and of interest-free micro - finance institutions, thereby contributing to financial inclusion and long-term economic progress. Furthermore; it's suggested that National Bank of Ethiopia revise its means of supervising/regulating operations related to free- interest-based micro-financing optimizing outreach effectiveness hence promoting successful establishment/development thereof.