Get Familiar with the Products availed by Interest Free Banking Service Providers in Ethiopia

The Following Interest Free Banking Deposit products and Profit Sharing are currently available at one of the major Commercial Banks named Commercial Bank of Ethiopia. It is government-owned bank and covers over 60% share of banking business in the country. It has started Interest Free banking in 2013, 3 years after the introduction of IFB Directives by the National Bank of Ethiopia.

1.1 IFB Deposit Types

The following Interest Free Deposit Accounts are available for those legal and natural personalities that fulfill the eligibility and documentary requirements, as set in the same procedure

1.1.1 Wadiah Amanah (Safe Keeping Deposit Account)

This is a trust Agreement where the Bank keeps funds of depositors who want to place their funds under safe custody without any benefit. These Accounts shall have the following basic features:

The minimum balance to open this Account is Birr 25.00 (Twenty five only). The Branch has the discretion to open a “zero balance” Account. However, the Branch shall close the Account, in accordance with the Account-closing procedure, if such minimum deposit requirement is not forthcoming, within one month (eg. CBE).
The Branch provides the customer with a passbook;
Customers are allowed to withdraw, from their credit balance, without any form of restriction/limitation as to the amount and timings of the withdrawal.
Account operation shall be through the use of formats prepared for this purpose;
This Account can be opened in 'Birr* or acceptable ‘foreign currency’.
With the permission of the customer, while opening the account, The Bank can make use of the fund on any permissible business financing.
No benefit is attached to this Account. All profits generated from the use of the funds belong to the Bank. However, the Bank, at its discretion, can provide a gift (monetary or in-kind) to holders of such account as a token of appreciation taking into account, among others, the amount and period for which the deposit remained with the Bank; and
There will be no service charge in relation to such Account except for cost recovery purposes in providing such services.

1.1.2 Mudarabah (PLS) Saving Account

This Account shall have the following basic features:

Depositors save their money for the benefit of profit sharing for an undefined time.
Profit rate to be paid is determined based on the bank's performance during the profit payment period;
The account is opened with zero profit sharing margin but periodically the bank notifies the amount of profit share to be paid to the depositors' account and credit the account,
It is operated with passbook;
The minimum balance to open this Account is Birr 500.00 (Five Hundred only);
Should the Bank suffer losses in its business ventures, the loss will be compensated using reserve accounts.
If the reserve couldn’t cover the loss, it will entirely be borne by the depositor/investor (unless there is evidence of gross negligence on the part of the Bank);
The account that shortfall of the minimum deposit requirement, on Profit Payment period, shall not be eligible for profit sharing;
The Account can be opened in ‘Birr’ or acceptable Foreign currency’.
Customers are allowed to withdraw, from their credit balance, without any restriction/limitation as to its amount and timing.
This Account will be operated with the use of formats prepared for this purpose.
There will be no service charge in relation to operating such Account at the counter. However, there could be service charges if the transaction is effected via ATM, POS other cash dispensing outlets passbook changes and other cost recovery activities.

1.1.3 Qard (Current/Checking/Demand Deposit Account-i)

This Account shall have the following basic features:

Similar to the conventional current account, the Branch provides its customers with checkbooks;
With the permission of the customer, while opening the account, The Bank can make use of the fund on any permissible business financing
The Bank undertakes to pay on demand any amounts outstanding in the Current Account in full.. The Bank may invest all amounts outstanding in this Account in such manner as the Bank, in its absolute discretion, deems fit and no returns of whatsoever nature (including profit) is paid out on this Account;
The operation of the Account can be performed through the use of checks provided by the Bank;
Minimum balance of Birr 1000.00 (Birr one thousand) is required to open such Account;
Newly opened Current Accounts should be separately kept for three months under the Account status assigned to them. So that it will not be operated without authorization. The Senior SCO- Accounts can, nevertheless, change the status before the stated period if she/he believes that the customer has been properly identified; and
The Bank may request service charge, to be determined from time to time, in relation to the operation of this account.

1.1.4 Mudarabah Fixed time Deposit Account

This Account shall have the following basic features:

It is similar to the Mudarabah Saving but the account is opened for a limited period (term), profit sharing margin can be variable among customers based on duration and volume of their
Depositors shall not participate in the management of the investment of the funds;
The costs of managing each of the Investment Fund (such as employees' salaries) will be borne by the Bank (the Mudarib);
The minimum amount required to have such investment Account shall be Birr 10,000 (ten thousand) and Birr 100,000 (hundred thousand) for short-term and long-term investments respectively. The Bank shall revise the threshold, as required;
With regard to deposit duration there are three options:

1) Short-Term Mudarabah Fixed time deposit

2) Medium-Term Mudarabah Fixed time deposit and

3) Long-Term Mudarabah Fixed time deposit account.

The Short-Term Mudarabah Fixed time deposit shall have an investment tenure of up to one year
The Medium-Term Mudarabah Fixed time deposit shall have an investment tenure of between 2 and 3 years
The Long-Term Mudarabah Fixed time deposit shall have an investment tenure of above 3 years
The deposit can be made in installment basis if the customer is not able to deposit at once. However, a minimum of 30% shall be made as down payment and the remaining balance shall be deposited in the following manner:

a) Short-Term Deposit (less than 1 Year)

• 6 Deposits on a monthly basis

b) Medium-Term Deposit (Between 1 and 3 Years)

• 4 Deposits on a quarterly basis

c) Long-Term Deposit (Above 3 Years)

• 6 Deposits on quarterly basis

d) Withdrawal from such Account will be entertained in the following manner. The Bank timely revise such thresholds:

a) Short-Term Deposit (<=1 Year)

• Not more than 20% of the total deposit

b) Medium-Term Deposit (Between 1 and 3 Years)

• Not more than 30% of the total deposit

c) Long-Term Deposit (Above 3 Years)

• Not more than 40% of the total deposit

1.1.5 Wadiah Yad Amanah (Trustee Safe Custody)

It is a contract wherein the Bank acts as a custodian of client assets (e.g. Jewelry) under trustee safe custody,

a) The bank cannot use these assets as they are for safekeeping; and
b) The customer pays service charges by taking into Account the value and the period for which the item kept, per the Bank’s terms and tariffs.

1.2 Accounts in Foreign Currency

Customers who fulfill the eligibility criteria can open foreign currency

Accounts in line with the requirements of the NBE in USD Dollar, Pound Sterling, and Euro Currencies only under the following permitted account types:

1.2.1 Wadiah Amanah (Safekeeping Account)

This is a modality that the Bank keeps customers’ FCY for safety purpose.

These Accounts shall have the following basic features:

The minimum amount required for an initial deposit to open this accounts shall be USD 100 or its equivalents in any of other acceptable currencies that can be converted to any of the three currencies enumerated above
The Branch provides the customer with a passbook or certificate of deposit or checkbook as appropriate;
Account operation shall be through the use of formats prepared for this purpose.
No benefit is attached to this Account. All profits generated from the use of the funds belong to the Bank. However, the Bank, at its discretion, can provide holders of such account with the token of appreciation that may take into Account, among others, the amount and period for which the deposit remain with the Bank.

1.2.2 Mudarabah FCY Saving Account

Mudarabah or Profit/Loss Sharing foreign currency saving account opened and maintained by eligible personalities mainly for the purpose of sharing profit from the returns the Bank earned from investment financed using such deposit.

These Accounts shall have the following basic features:

The Bank provides the customer with a passbook or certificate of deposit or checkbook as appropriate;
The minimum amount required for an initial deposit to open this accounts shall be USD 100 or its equivalents in any of other eligible currencies that can be converted to any of the three currencies enumerated above
Profits (if any) arising from the business venture will be shared between the two parties in accordance with predetermined profit- sharing ratios;
Should the Bank suffer losses in its business ventures, the loss will be compensated using reserve accounts.
If reserve accounts couldn’t cover the loss, it will entirely be borne by the depositor/investor (unless there is evidence of gross negligence on the part of the Bank);
Account that shortfall of the minimum deposit requirement, at any given time, shall not be eligible for profit sharing;
Customers are allowed to withdraw, from their credit balance, without any restriction/limitation as to its amount and timing
This Account will be operated with the use of formats prepared for this purpose.

1.2.3 Qard (FCY Current/Checking/Demand Deposit Account-i)

This Account shall have the following basic features:

The Bank undertakes to pay any amounts outstanding in the Guaranteed Current Account in full, in local currency or as the case may be.
The Bank may invest all amounts outstanding in this Account in such manner as the Bank, in its absolute discretion, deems fit and no returns of whatsoever nature (including profit) is paid out on this Account;
The operation of the Account can be performed through the use of checks provided by the Bank;
The minimum amount required for an initial deposit to open this accounts shall be USD 100 or its equivalents in any of other eligible currencies that can be converted to any of the three currencies enumerated above
Newly opened Accounts should be separately kept for three months under the Account status assigned to them. The Senior SCO- Accounts can, nevertheless, change the status before the stated period if she/he believes that the customer has been properly identified; and
The Bank may request service charge, to be determined from time to time, in relation to the operation of this account.
Profit shall be payable to the account holder only in local currency.
The benefit/profit earned from the Mudarabah balance of this account cannot be repatriated abroad.

2.2.4 FCY Mudarabah Fixed Term Deposit

The FCY accounts of foreign currency can be introduced for those customers (i.e., Non-Resident Ethiopian/Foreign nationals) as Resident and Non - Resident Deposits account at the Trade Service-NR/NT & Foreign Transfer in a manner consistent with “Directive No. FXD/31/2006*- The Opening and Operation of Foreign-Currency Accounts for Non-Resident Ethiopians and Non-Resident Foreign Nationals of Ethiopian Origin under “Wadia* or “Mudharabah* Contract.

In this modality, depositors place their fund for profit sharing within specified periods.
The Bank accepts investment amount from customers who are looking for short, medium and long-term investment opportunities for their funds. Under this principle, the Bank provides the fund management service and the customer acts as the capital provider.
This Account shall have the following basic features:
Profit on a fixed-time foreign-currency deposit shall be payable only if the foreign currency was kept for a minimum period of three months;
The Bank can set its own profit rates on Investments (fixed-time foreign-currency accounts).
The payment of profit on fixed-time deposits maturing on Sundays, holidays and non-business working days shall be determined based on the succeeding working day.
The Bank shall issue to the depositor an investment or a fixed-time deposit certificate in her or his name.
If the investment fixed-time deposit contact is not closed upon maturity, The Bank may renew it, in consultation with the depositor.
The minimum amount required for an initial deposit to open FCY Mudarabah Fixed term deposit shall be USD 5,000.00 (five thousand) or its equivalent in any of the eligible convertible currencies that the

1.3 Profit Sharing

For deposits kept under PLS/Mudarabah either in birr /FCY for indefinite or fixed period the Bank share/pays profit out of its investment returns provided that the deposits meet minimum requirements set out for each type of Mudarabah deposits.

The Bank can use, with the consent of the customer, all types of deposits (except items under Trustee safe custody*) in financing permissible business activities;
The following Account types are eligible for profit sharing arrangement:

i. PLS (Mudarabah) Saving Account (Both Birr and FCY Accounts)

ii. Mudarabah fixed time deposit Account (Both Birr and FCY Accounts)

The total profit shall be allocated to “Mudarabah” account by taking into account the amount and period of investment of the respective “Mudarabah” fund: If the Bank has put its own fund/equity onto the “Mudarabah* fund, the Bank will have its own share, accordingly;
Daily, Monthly or average balance Profit calculation period shall be considered for the Mudarabah Saving and Mudarabah Fixed Time Deposit Accounts, respectively;
In cases where a Mudarabah Account is closed prior to the applicable Profit Payment Date, the Customer shall be entitled to receive the profits accrued on the Mudarabah Funds for the relevant investment period;
If the balance in the Mudarabah Account, on any day during the month, fails below such minimum balance as set out by the Bank from time to time, then the entire balance in the Mudarabah Account shall not participate in the Mudarabah pool during that relevant calendar month;
The Mudarabah deposit pool and Financing modalities shall have strict link. And reporting mechanisms shall be in place to monitor both.
The Bank reserves the right to deduct, if required, a certain percentage of the Mudarabah Profit as Profit Equalization Reserves(PER) or Investment Risk Reserve (IRR), for the purpose of:

i. Maintaining consistency in profit payouts over a period of time in respect of Mudarabah Account, by retaining part of the Mudarabah Account holders' profit, which is earned through participation in the Mudarabah Pool;

ii. Making profit payments for the portion of the Investment Period in which profit is not yet realized, to Mudarabah Account holders whose deposits mature and/or are liquidated between two Profit Payment Dates. The Bank shall, upon realization of the profits for the Profit Calculation Period, replenish the Profit Equalization Reserve/ Investment Risk Reserve with actual Profit Amount accrued for the relevant number of days elapsed during such Profit Calculation Period during which profit was paid but unrealized.

Profit Sharing shall be as per the Banks performance and/or profit-loss ratio sharing agreement (i.e. profit sharing ratio) to be specifically noted under the respective contracts and/or deposit placement form. In case not get anything for the services rendered. The Bank reserves the right to vary the Mudarib’s profit share and/or the weightings from time to time in accordance with the prevailing regulations and/or directives applicable to it.
The following profit sharing method shall be employed:

No Deposit Type Profit/Loss Sharing

1 Safe Keeping Deposit Account Not Applicable

2 PLS (Mudarabah) Saving Deposit Account

• Pre-defined ratio Based on the agreement

• Weitage Method Based on the Bank’s performance

3 Current/Checking/Demand Deposit Account Not Applicable

4 Mudarabah Fixed Time Deposit Account

• Pre-defined ratio Based on the agreement

• Weitage Method Based on the Bank’s performance

5 Trustee Safe Custody Not Applicable

Tuesday, April 23, 2019