MINI PAPER ON PROJECT IDENTIFICATION, ASSESSMENT,

IMPLEMENTATION AND PROBLEMS (IN CASE OF HIJRA

BANK S.C)

RIFT VALLEY UNIVERSITY HARAR CAMPUS

DEPARTMENT OF MASTARS BUSINESS ADMINISTRATION

INDIVIDUAL ASSIGNMENT

COURSE: - INTRODUCTION PROJECT MANAGNMENT

PREPARED BY MEGERSA JEMAL SANI

OCTOBER,2023
HARAR, ETHIOPIA
Table of Contents
1.CHAPTER ONE 4
1.1 Introduction 4
1.2 Macroeconomic Analysis of Ethiopia 5
2.1. Impact of Global Economic Developments on Ethiopian Economy 6
2.2. State of Ethiopian Economy 6
2.3. Level of GDP and its Trend in Ethiopia 7
Table 2.1. GDP growth, Source: Ministry of Finance and Economic Development 7
Table 2.2 Investment as percentage of GDP 7
2.4. Level and Trend of Employment in Ethiopia 8
2.4.1 Employment Status 8
2. 5. Inflation 9
Table 2.3 Inflation in terms of percentage 9
2.6. Public Sentiment /Mood/ 9
Table: 2.4 Numbers of Approved Projects and Investment Capital by Type of Investment (July 7, 2007 to July 8, 2008) 10
2.7. Investment 10
2.8. Demand and Supply Shocks 11
2.9. Availability of Investment Credit 11
2.10. Stable Economic Environment 11
2.11. Security of Investment 12
2.12. Tax Exemptions/Tax Credits 12
2.13. Civil Liberty 13
2.14. Labor Law and Working Habits 13
2.15. Proximity to the Market 14
2.16. Infrastructure development 14
2.17. Religion 15
2.18. Population Size 15
CHAPTER TWO 16
2. Banking Industry Analysis and How Hijra banks investment idea is generated 16
2.1. A Brief History of Banking in Ethiopia 16
2.2. Market Demand Size of the Banking Services 17
2.3 Products and Services of the Banking Industry 18
2.4. Market Share of Players in Banking Industry 18
Table 3.1 Market share using net profit (in millions of Birr) 19
2.5. Industry Structure- Porter’s Model 20
2.6 Hijra banks Project idea identification, assessment and implementation problems 21
2.6.1 Background of the Hijra Bank 21
2.6. 2 Vision, Mission and Value statement of Hijra bank 22
2.6.3 Man Power Development 23
2.6.4 Service Focus of Hijra bank 23
2.6.4.1 Murabaha Financing 24
2.6.4.2 Mudarabah & Musharekah 24
2.6.4.3 Wakallah 25
2.6.4.4 Istisna & Salam 25
2.6.4.5 Haramain 25
2.6.4.6 Hijira Bank Digital Banking 26
2.6.5. Market Expansion 27
2.6.6. Financial Measures 27
2.6.6.1. Financial Performance of Hijra Bank 27
2.6.6.2. Non- Financial Measures ( BSC) 27
I. Financial Perspectives 28
II. Customers Perspective 28
III. Internal Business Process Perspective 28
IV. Learning and Growth Perspective 28
2.7. SWOT analysis of Hijra S.C 29
Chapter Three 29
3. Concluding Remark 29

3.1. Encouraging Factors 29

3.2. Risk Factors 30
Reference 32
 1. CHAPTER ONE

1.1 Introduction
Investment climate refers to the totality of macroeconomic, political, policy, and institutional
conditions in a country that, together with structural forces, determine private investment,
enterprise performance, and growth. It consists of factors that act as an incentive/disincentive in
starting and running a business such as, but not limited to, financial services, governance,
regulation, labor relations, conflict resolution, and infrastructure services. The structural factors
that play an important role in the outcomes of investment climate include geography
(determining flows of products and inputs and proximity to export markets), and level of
development (determining purchasing power of the domestic economy). The majority of
investment climate variables are prone to change and can in fact be improved through
appropriate policy reforms once their weaknesses are pinpointed. Each of the variables of an
investment climate affects performance and cost of doing business in a country in a variety of
ways. Some mainly affect export performance and competitiveness in general, while others may
affect starting a business in a given region within a country (The World Bank, Washington, D.C.
January 2004).

Investors need various information regarding the macroeconomic condition, industry conditions,
and company performance in which they prefer to make an investment. A top down analysis of a
firm‟s prospects must start with the global economy or the bottom-up approach which starts
from the specific firm (Bodie et al. 2003). In the economic analysis major emphasis is given to
macroeconomic elements like GDP, unemployment rate, inflation, interest rates, budget deficit
and sentiment to describe the state of the macro economy of the given country. Besides, with a
minimal domain, checking the industry viability, using various statistical tools, is also crucial
(Degefe 1995).

According to Thurlby B (1998), Company analysis is the means by which investors and their
advisors seek to arrive at the best investment decisions. By analyzing past performance and the
state of today's business, analysts attempt to predict what is likely to happen tomorrow to a
company's profits, cash flows and ability to pay dividends. It is a quick check on financial health
and profit prospects, or painstaking research using all available facts and figures. This enables
current valuation on the shares, and in turn, comparison with current market prices. The analyst
provides an opinion on whether a company's shares are under or overvalued, which will
ultimately lead to a "buy", "sell" or "hold" recommendation on the company.
The Government of Ethiopia is committed to increasing the role of private investment in the
economy. This is articulated in the country’s second poverty reduction strategy paper. Strong
financial reporting infrastructure will support the Government’s agenda by providing quality
financial information, which will facilitate investment decisions and help to reduce risk of
financial crises and corporate failures together with their associated negative economic impacts
that have been witnessed in many industrial and developing countries. (Source: Ethiopia
Accounting and Auditing ROSC)
Ethiopia is the second large population country in the Africa after Nigeria about 108 million
among them about 33.9 percent of them are Muslims (theodora.com, 2020). Even though, until
recently, there was no financial institutions which can serve the large Muslim population
requiring sharia-compliant products. National Bank of Ethiopia (NBE) in 2008 amended
Ethiopian Banking Business Proclamation (592/2008) to include provision of Interest free
banking in Ethiopia. However, the declaration was amended by another declaration
(SSB/51/2011) which prohibited the establishment of full-fledged Islamic financial institution
but give the right to open the door for existing commercial banks to create an interest-free
banking (hereafter, IFB) window. (Aman, 2019)

Since the beginning of the Interest free banking services as a window in 2013 by Oromia
International Bank, the sector has fast grown in the last 7 years. In 2013, the biggest commercial
bank in Ethiopia, the Commercial Bank of Ethiopia, followed and immediately started to attract
many customers. In the next year, the other private bank, United Bank followed the footsteps of
the first two banks. In 2015, after that another three banks, namely the Cooperative Bank of
Oromia, Nib Bank and Wegagen Bank had joined the industry. In 2016, 2017 and 2018,
Abyssinia Bank, Abay Bank, and Dashen Bank respectively have introduced Interest free
banking as the interest free window services. Currently, a total number of 10 banks have
window-based Interest free banking services in Ethiopia. (Aman, 2019)

Currently, four share companies have passed the pre-application stage and received permissions
from the central bank to open full-fledged bank accounts and start selling shares. While Zemzem,
Hijira and Zad, are in the process of formation, others, Kush and Huda, have already began a
process to organize a full-fledged Islamic financial institution (Tadesse, 2019)

The general objective of this mini paper assignment is described under three perspectives. The
first objective of this paper is to address the project idea is generated by the founders of Hijra
bank S.C. The second one is the bank industry analysis of Ethiopia including market share of the
major player, market demand size and industry’s structure. Finally, it will deal financial and non
financial measures about the Hijra bank and the problems on implementation
1.2 Macroeconomic Analysis of Ethiopia
The major macroeconomic elements such as GDP, inflation, interest rate, employment trend,
supply and demand shocks of Ethiopia are discussed in the separate section.

2.1. Impact of Global Economic Developments on Ethiopian Economy

Ethiopia relies on the outside world to finance many of its development programs. The funds
come in a form of aid or investment from countries hard hit by the crisis. Therefore, the crisis is
likely to reduce the flow of aid and investment as countries strive to solve the domestic financial
crisis (e.g. the numerous bailout programs launched in North America, Europe and Asia). The
Ethiopian Prime Minister has acknowledged that this situation might affect aid and investment
flow during his address to the Parliament.

The Ethiopian Electric Power Corporation, the only provider of electricity in Ethiopia, has
indicated that its investment plans will be severely affected due to the crisis
(www.ethiopiareporter.com). According to the Chief Executive Officer, giant international banks
such as Morgan ING and others have started to invest in the power sector in Ethiopia. Since
these banks are affected by the market turmoil, the Corporation expects a knock on effect a
reduction in investment.

Finally, there are hundreds of thousands of Ethiopians leaving abroad mainly in Europe and
North America who transfer money to their relatives back home. As the financial crisis bites, the
ability of these people sending remittance will be severely affected. This will have negative
effect on the livelihoods of those who depend on remittance. According to Amdissa Teshome,
(Private consultant), the Ethiopian Economy is one of the least monetised in the world with over
85 per cent of the population having little access to banking and financial services. From this
perspective it might appear that Ethiopia has little to fear from the current global crisis. The
Ethiopian Prime Minister told Parliament “In general, we don't expect drastic effects on our
economy, our financial structure is not as liberalized as those of affected countries and the
economy is not intertwined to Western economies to face a crisis.”

2.2. State of Ethiopian Economy

According to the report presented by forum of federation (May, 2010), before the recent
economic crisis, Ethiopia was thriving, with a growth rate that was expected to reach double
digits. Success stories abounded as Ethiopian flowers were sold in Europe, sometimes squeezing
out those from Kenya, and a German company using Israeli technology launched bio-fuel
production in Oromia State. Then the crisis hit. How much of an impact the global meltdown
would wreak on Ethiopia was a matter of intense debate among policymakers and their critics.
Government officials were optimistic the impact would not be significant, but other analysts
were gloomier. The real debate was over Ethiopia’s growth rate, which was expected to be below
that of previous years. Annual economic growth in Ethiopia reached as high as 13 per cent over
the last five years, and did not slip below eight per cent until 2008. Ethiopia’s federal
government will take a hit from the crisis. The country expected to run a deficit of US$ 832
million (10.4 billion birr) for its 2009/10 fiscal year. The deficit represents about 1 percent of
Ethiopia’s projected GDP for 2009 of $34.8 billion.

2.3. Level of GDP and its Trend in Ethiopia

Ethiopia is a fast growing non-oil economy that achieved double-digit growth in the period
2003/04-2009/10. However, the country has been struggling with the twin macroeconomic
challenges of high inflation and very low international reserves since 2007/2008. Economic
growth remains robust, with real gross domestic product (GDP) growth of 9.9% in 2008/09,
down from 11.6% in 2007/08 the lowest since 2003/04. This high growth rate has been driven
mainly by a boom in services and healthy growth in agriculture, supported by strong service
exports and increasing official development assistance. Growth is expected to be greater than
13% in 2010/11, owing to the expected global recovery. The tight fiscal and monetary policies
that seek to contain inflation are expected to slow down domestic demand. (MOFED).

Table 2.1. GDP growth, Source: Ministry of Finance and Economic Development

Sector of the economy 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Real GDP growth rate 11.7 12.6 11.5 11.8 11.2 9.9
Agriculture 16.9 13.5 10.9 9.4 7.5 6.4 5
Industry 11.6 9.4 10.2 9.5 10.0 9.9
Services 6.3 12.8 13.3 15.3 16.0 140
Banking and insurance 20.1 24.2 28.7 15.1 24.9 25.4
service

The above table shows that on the average the real GDP growth of Ethiopia is 11.28 %. The
source of this growth comes from agriculture, industry, services and banking and insurance
companies but the economy sector that play a greater role to have the above real growth rate is
the service sector which starts to increase from 2004/05
Table 2.2 Investment as percentage of GDP

Sector of the 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

economy
Rate of Investment 26 24 25 26 23 22
(as % GDP)
Resource Balance -16.7 -20.4 -22.7 -19.3 -19.4 -18.2

From the above table the rate of investment which shows the smallest in the last consecutive year
was 22 percent of GDP in the year 2008/09

2.4. Level and Trend of Employment in Ethiopia

It is quite clear that in a situation, like Ethiopia, where there is a rapid growth of population the
number of new entrant human resource in to the labor force, economically active population
increase significantly. So as to say, productive employment‟ the rate of growth of output and
labor productivity has to exceed the growth rate of labor force.

2.4.1 Employment Status

A. Employment to Population Ratio
According to the 18 Key Indicators of Labor Market (KILM) used by the ILO, employment to
population ratio is calculated as a percentage of total employed persons to that of them working
age population (ILO, 1999). The distribution of employment to population ratio for urban areas
of the country in all age group and sex is 47.5, which is 59.0 for male, and 37.3 for female. The
data for employment to population ratio for the country total and selected major towns by age
group and sex are presented in Table 5.2, 5.2.1 and 5.2.15, respectively

B. The Size and Rate of Unemployment

According to Central statistical Agency of Ethiopia (CSA), the standard definition of

unemployment is based on the "seeking work" criterion that can be interpreted as activity or
efforts searching for job by non-working persons during a specified reference period or prior to it
(i.e., paid or self employment). The magnitude of unemployed population is measured with the
unemployment rate. The unemployment rate is computed as the percentage of the unemployed
population over the total number of economically active population.

In the urban area economically active population in all ages comprises 5,715,857, which is
3,014,367 of male and 2,701,490 female. Whereas, the unemployed population constitutes
1,168,591 which are 367,992 of male and 800,599 female. The unemployment rate for this
respective population is 20.4, which is 12.2 of male and 29.6 female.

2. 5. Inflation

The biggest problem currently facing Ethiopia is high inflation. According to the official Central
Statistic Agency, inflation in September 2009 was 37.2%, but inflation related to food items was
51.8 %. This price increase in goods and services is going to reduce disposable income and limit
spending to essential food items only; pushing private sector and small industries into
contraction or bankruptcy. That in return may lead to default on loans and slowing down of
construction, agro-industry and manufacturing. Particularly huge increase in land price and
construction materials may make it unaffordable even for the Diaspora community to invest in
real estate.

According to ministry of finance and economic development, during the last three years the
Ethiopian economy, though registered double digit growth, it experienced macroeconomic
challenges with inflation pressure persisted. General commodity price surging for successive
years; with both month to month and 12 months moving average general consumer price index
growths registered the highest of 46.1and 64.1 percents respectively. Trends in general inflation
rate (12 months moving average)

Table 2.3 Inflation in terms of percentage

Year Inflation rate (consumer price) Rank Percentage change Date of inflation
2003 4.00 % 86 2003
2004 17.80 % 13 345.00 % 2003
2005 2.40 % 75 -86.52 % 2004
2006 11.60 % 199 383.33 % 2005
2007 13.00 % 204 12.07 % 2006
2008 17.20 % 218 32.31 % 2007
2009 44.40 % 220 158.14 % 2008
2010 8.50 % 185 -80.86 % 2009
Source: CIA World Fact book
The trend of inflation shows that increase of up to 2009 and this year is the year of high inflation
registered in the country. Following to this year, 2010 is decline of inflation in the country.
2.6. Public Sentiment /Mood/
Even though measuring the public sentiment is too difficult, it is possible to measure it by using
some proxy indicators such as number of investment project authorized by the government, in
our cases Ethiopian Investment Agency (EIA). When we look the overall trend of investment in
2008/09, though the total number of projects has declined slightly, the capital invested has shown
an increment. Taking in to consideration that this is a time of overall financial and economic
crisis, the recorded increment in total investment is a good sign. However, several encouraging
measures should be taken to motivate investors to invest in more projects. Therefore, it is
reasonable to conclude the public sentiment is good.

Table: 2.4 Numbers of Approved Projects and Investment Capital by Type of Investment
(July 7, 2007 to July 8, 2008)
Description Number of approved projects Total capital in million birr
2008/09 2007/08 Percentage 2008/09 2007/08 Percentag
growth e growth
Domestic 7,218 7,357 -2 83804 78390 7
Foreign 1,622 1,632 -1 73156 94031 -22
Public 11 5 120 83833 784 100
Total 8851 8994 -2 239796 173205 38
Source: Ethiopian Investment Agency

2.7. Investment

In May 1992, the government issued a detailed proclamation on investment and established and
investment authority accountable to the board of investment. This proclamation was further
revised in June 1996. Ethiopia’s investment code provides incentives for development-related
investments, reduces capital entry requirements for joint ventures, permits the duty free entry of
capital goods (except computers and vehicles), opens the real estate sector to expatriate
investors, extends the losses carried forward provision, cuts the capital gains tax from 40 to 10
percent, and gives priority to investors in obtaining land for lease. The investment code
identifies certain sectors that are reserved for the government retains the exclusive right to
generate and supply electricity, other than from hydropower, above 25 megawatts. Other
investment areas exclusively reserved for the government include air transport service using
aircraft with a seating capacity of more than 20 passengers or with a cargo capacity greater than
2700 kilograms, rail transport services, and telecommunication services, including the internet,
only in partnership with the government.

The investment areas reserved for Ethiopian nationals include banking and insurance, the
generation and supply of electricity other than hydropower up to 25 megawatts, air transport
services with seating capacity up to 20 passengers or cargo capacity up to 2700 kilograms, and
forwarding and shipping agency services. Ethiopia reserves many businesses in the service and
trade sectors for domestic investors. These areas include: broadcasting, retail and wholesale trade
(except in petroleum and locally produced goods), import trade, export trade of local agricultural
products, small and medium scale construction, bars and nightclubs, small hotels and
restaurants, travel agencies, car and taxi services, bakery products, grinding mills, barber shops
and beauty salons, goldsmith shops, tailoring services, building and vehicle maintenance
services, saw milling, customs clearance, museums and theatres, and printing.

The Ethiopian government reviews investment proposals in a non-discriminatory manner; the

screening process is not regarded as an impediment to investment, a limit to competition, or a
means of protecting domestic interests. Foreign firms are welcome to invest in privatization
efforts of the Ethiopian government, although in some instances it promotes joint ventures with
Ethiopian private concerns rather than outright sales. Foreign firms participate through
consultancy services preparatory to privatization or through tendering on advertised privatization
opportunities.

2.8. Demand and Supply Shocks

Some demand shocks in the country increase in the money supply due to the inflation, increases
in government spending for different infrastructural development, increases in foreign export
demand, and this will tend to stimulate the economy and increase GDP. It also might increase
interest rates by increasing the demand for borrowed funds by the government as well as by
businesses that might desire to borrow to finance new ventures. Finally, it could increase the
inflation rate if the demand for goods and services is raised to a level at or beyond the total
productive capacity of the economy. On the other hand, changes in the prices of imported and
local products, the wage rate the labor is working for are some of the supply shocks and this
leads to raw materials more expensive, the productive capacity of the economy is reduced, as is
the ability of individuals to purchase goods at now-higher prices. GDP, therefore, tends to fall.
However, in Ethiopia demand and supply shocks are there and lead to high inflation but the GDP
growth is not similar to what is prevailing internationally rather increasing.

2.9. Availability of Investment Credit

The current investment climate is only open to tycoons or well connected individuals who have a
means to borrow huge amount of money from the government banks often without collateral.
This is exactly the root cause of sub-prime mortgage in the West and Ethiopia need to avoid “me
too” investment that is not backed by proper business plan.
2.10. Stable Economic Environment

According to press statement of the IMF, Mr. Mathieu issued the following statement at the
conclusion of the mission: “Good progress was made in the first half of 2009/10 in
macroeconomic stabilization. Macroeconomic conditions continued to improve while broad-
based growth momentum has been maintained. Overall, inflation decelerated sharply to 7.1% at
end-2009 following very high inflation in 2008 and early 2009. But non-food inflation remains
close to 20% and has been rising in recent months.

“The economic outlook remains generally favorable wit h continued strong growth expected.
Ongoing efforts to lower inflation and rebuild foreign reserves will require a tight rein on money
growth and achieving interest rates that are posit ive in real terms. Ethiopia‟s public external
debt has risen in recent years on large physical infrastructure investments, but remains within the
moderate risk range. Going forward the authorities are encouraged to reinforce financial sector
supervision, promote private sector development and financial deepening, and improve the
national account statistics.”

2.11. Security of Investment

 Government guarantees (Investment Code 1991) and constitutional protection from
expropriation
 Ethiopia is a signatory to the main international investment related institutions, for example, it
is a Member of the Multilateral Investment Guarantee Agency (MIGA)
 Ethiopia is also a signatory of the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States
 Professional one-stop-shop for foreign investment through the Ethiopian Investment Agency
(EIA).

2.12. Tax Exemptions/Tax Credits

 Customs Import Duty - 100% exemption on all import of investment capital goods (plant
machinery, construction materials, etc.) including spare parts worth up to 15% of the imported
investment capital goods; plus exemption for import of raw materials needed for the production
of export goods
 Export Customs Duty: Products and services developed in Ethiopia are exempt from exporttax
 Corporate income tax (tax on profit) is 30%
 Excise tax is levied (minimum 10%) on selected local or imported products
 Turnover tax at 2% for priority sectors such as tractors, combine harvesting, grain mill etc.
and 10% on other sectors
 Customs duty on un exempted imports ranges from 0 to 35%
 Income tax ranges from 10 to 35% on monthly income of$16.50 and above
 Withholding tax is payable on imports at 3% of cost, insurance and freight
 Dividend tax (on income derived from dividends from a share company or withdrawals of
profits from a private limited company) at 10%
 Royalty tax (on income derived from technology and intellectual property rights) at 5%
 Capital gains tax - share of companies 30%; business, factory or office buildings 15%;
residences 0%
 Rental income tax (on annual rental income) between 0 and 35% dependent on level of rental
income
 Stamp duty - Leasing 0.5% of value; registering title to property 2% of value; contract of
Employment 1% salary; bonds 1% of value, etc.
 Tax treaties to avoid double tax payment are signed with several countries, along with
bilateral treaties for the protection and promotion of investments

2.13. Civil Liberty

Although Ethiopians enjoy greater political participation and freer debate than ever before in
their history, the country is only a formal democracy in which fundamental freedoms are
restricted. In April 2006, United Nations High Commissioner for Human Rights Louise Arbour
strongly criticized Ethiopia's human rights situation, calling it "worrying and deteriorating.”
Reports of torture, police brutality y and extrajudicial killings are common, according to the UN
Commission on Human Rights. Divisive ethnic policies have paved the way for the violet ion of
minorities rights. The government’s increasing resort to arbitrary arrest and unfair trial also
signals a progressive deterioration of political liberties.

2.14. Labor Law and Working Habits

Since 85 percent of Ethiopia's workforce engages in subsistence farming in the countryside, only
a very small percentage of the population is involved in wage labour. The Ethiopian constitution
and the 1993 labor law provide wage laborers with the right to form and belong to unions,
though employees of the civil and security services (where most wage earners work), judges, and
prosecutors are denied these rights. The Confederation of Ethiopian Trade Unions (CETU),
established after the fall of the Derg regime in 1993, includes 9 federations organized by
industrial and service sector. There is no requirement that unions belong to the CETU.
Approximately 250,000 Ethiopian workers are unionized.

The minimum age for wage labor is 14 years, and various laws protect children between the ages
of 14 to 18 years, including restrictions that they may not work more than 7 hours per day. The
U.S. Department of State maintains that there are some efforts to enforce such regulations within
the formal industrial sector, though there are large numbers of children of all ages that grow and
harvest crops outside government regulatory control in the countryside or work as street peddlers
in the cities. The harsh reality is that many impoverished parents depend on the work
contributions of their children to ensure the survival of the household.

While there is no minimum wage in the private sector, a minimum wage in the public sector has
been in effect since 1985. According to the U.S. Department of State, however, the minimum
wage in the public sector, which equaled about US$16 per month in 1996, is insufficient to
provide a decent standard of living for a worker and family. The Office of the Study of Wages
and Other Remunerations, for instance, reports that a family of 5 requires a monthly income of
US$61 in Ethiopia. Most employees in Ethiopia work a 40-hour week, and the government,
industry, and unions negotiate occupational health and safety standards. The Inspection
Department of the Ministry of Labor and Social Affairs cannot enforce these standards
effectively, however, due to a lack of human and financial resources.

2.15. Proximity to the Market

 Strong internal market with second largest population in Sub-Saharan Africa at 75 million
(July, 2006)
 Located in the Horn of Africa at the crossroads between Africa, the Middle East and Asia,
within easy reach of the major ports of the horn
 Membership of the Common Market for Eastern and Southern Africa (COMESA) embracing
23 countries with a population more than 300 million. Ethiopia enjoys the benefits of preferential
tariff rates on exports to these countries.
 Ethiopia is an ACP member (African, Caribbean and Pacific Group) and accession to the
WTO is under negotiation.
 Duty and quota free access into the U.S. (AGOA) and EU (EBA) markets. Export products
from Ethiopia to the EU market are entitled to duty reductions or exemptions and are free from
all quota restrictions under the terms of the Lome Convention. The trade preference accorded
Ethiopia includes duty free entry of all industrial manufactured products. Under the generalized
system of preferences (GSP), a wide range of Ethiopia's manufactured products are entitled to
preferential duty treatment in the United States, Canada, Japan and most EU countries.
 The large and fast growing domestic market offers good prospects for investment in and the
development of consumer goods industries such as food, beverages, tobacco, plastic products,
soap and detergents, drugs and pharmaceuticals, paper and paper products and electrical and
electronic products.

2.16. Infrastructure development

 Air transport: Three international and 18 domestic airports, with international flight links to
over 45 cities on four continents (12 in Africa, 12 in Asia, five in Europe and two in North
America), and domestic links to 26 destinations
 The national airline Ethiopian Airlines has an outstanding safety record and modern fleet.
 Modern air cargo terminal and maintenance hangar in Addis soon to be completed
 Road Transport: Investment in road infrastructure a high priority, with an expanding road
network and international highways linking Ethiopia with its neighbors
 Railways and Ports: 500 mile rail service linking Addis to the port of Djibouti (on the Red
Sea coast) via the eastern cities of Dire Dawa and Nazareth. Ethiopia also has access to
Berbera in the East and Mombassa in the south.
 Telecoms: Microwave links connect all regional cities and a number of smaller towns have
automatic telephone services. International communications links are maintained through two
satellite earth stations, providing telephone, internet, telex, fax and TV services. Microwave links
exist with Kenya, Djibouti and the Sudan.
 Power Supply: Ethiopia has vast hydropower and promising geothermal energy resources,
with nine hydro-electric power plants. To date, the aggregate electricity generated is less than 2%
of the potential, and developing this area is a Government focus.
The main industrial towns are all connected to the national grid, and electricity is relatively
cheap. The Government has liberalized the sector, allowing foreign investors to participate in
generating electric power by setting up hydroelectric power plants, although national grid
transmission and distribution remains with the state-owned Ethiopian Electric Power
Corporation.

2.17. Religion

Investment can be gravely affected by the doctrine of religions. Since Ethiopia is multiethnic and
multi-religion country, one should consider the doctrine of religion while he/she is investing. The
two dominant religions in Ethiopia are Christianity and Islam. On both religious doctrines
alcoholic drinks, pork, etc are strictly forbidden. In addition cigarette is not also recommended,
according to their credo. Hence, investors should consider the religious teachings when they are
trying to invest, especially in those areas which are mentioned earlier.

2.18. Population Size

According to the CSA, in 1975, the population of Ethiopia was approximately 32.2 million.
With a relatively high growth rate of 2.7% between 1975 to 2000, the population of Ethiopia
doubled during this period, reaching a total of 64,117,452 by July 2000. Currently, the
population growth rate remains high (2.76 percent), and it is forecasted that the population
will reach 90.9 million by 2015 (July 2000 est.). In order to restrain the growth process, the
Ethiopian government recently included a population control component in its overall
development program. The death rate was estimated at 17.63 deaths per 1,000 people, and the
birth rate was 45.13 births per 1,000 people (2000 est.). In terms of the age structure of the
population, 47 percent of Ethiopians are younger than 15 years of age, 50 percent are between
the ages of 15 to 64, and only 3 percent are older than 65 years of age. Only 16.3 percent of the
population lives in urban areas.

CHAPTER TWO

2. Banking Industry Analysis and How Hijra banks investment idea is generated

2.1. A Brief History of Banking in Ethiopia

The history of the use of modern money in Ethiopia can be traced back more than 2000 years
(Pankhrust 1968 cited in Gedey 1990). It flourished in what is called the Axumite era which ran
from 1000 BC to around AD 975. Leaving that long history aside, modern banking in Ethiopia
started in 1905 with the establishment of Abyssinian bank which was based on a fifty year
agreement with the anglo-egyptian national bank. In 1908 a new development bank (called
societal nat ionale d ethiope pour le development del‟ agriculture et du commerce) and two other
foreign banks (banque de lindochine and the compagnie de lafrique orientale) were also
established (Pankhrust 1968 cited in Degefe 1995). These banks were criticized for being wholly
foreign owned. in 1931 the Ethiopian government purchased the Abyssinian bank, which was the
dominant bank, and renamed it the bank of Ethiopia the first nationally owned bank on the
African continent (Gedey 1990: 83; Degefe 1995: 234).
During the five-years of Italian occupation (1936-41) banking activity expanded. The Italian
banks were particularly active. After independence from Italy‟s brief occupat ion, where the role
of Britain was paramount owing to its strategic planning during the Second World War,
Barclays Bank was established and it remained in business in Ethiopia between 1941 and 1943
(Gedey 1990; Degefe 1995). Following this, in 1943 the Ethiopian government established the
State Bank of Ethiopia. The establishment of the Bank by Ethiopia was a painful process because
Britain was against it (see Degefe 1995 for an interesting neocolonial story).

The Bank of Ethiopia was operating as both a commercial and a central bank until 1963 when it
was remodeled into today’s National Bank of Ethiopia (the Central Bank, re-established in 1976)
and the Commercial Bank of Ethiopia (CBE). All privately owned financial institutions
including three commercial banks, thirteen insurance companies, and two non-bank financial
intermediaries were nationalized on 1January 1975. The nationalized banks were reorganized
and one commercial bank (the Commercial Bank of Ethiopia), a national bank (recreated in
1976), two specialized banks the Agricultural and Industrial Bank (AIB), renamed recently as the
Development Bank of Ethiopia (DBE) and a Housing and Saving Bank (HSB), renamed recently
as the Construction and Business Bank (CBB), and one insurance company (Ethiopian Insurance
Company) were formed. Following the regime change in 1991 and the liberalization policy in
1992, these financial institutions were reorganized to work to a market-oriented policy
framework. Moreover, new privately owned financial institutions were also allowed to work
alongside the publicly owned ones.

On April 15, 1943, the State Bank of Ethiopia became the central bank and was active until
1963.The National Bank of Ethiopia was established in 1963 by Proclamation 206 of 1963 and
began operation in January 1964. Prior to this proclamation, the Bank carried out dual activities,
i.e. commercial banking and central banking. The proclamation raised the Bank's capital to 10
million Ethiopian birrs and granted broad administrative autonomy and juridical personality.
Following the proclamation the National Bank of Ethiopia was ent rusted with the following
responsibilities:
 To regulate the supply, availability and cost of money and credit.
 To manage and administer the country's international reserves.
 To license and supervise banks and hold commercial banks reserves and lend money to them.
 To supervise loans of commercial banks and regulate interest rates.
 To issue paper money and coins.
 To act as an agent of the Government.
 To fix and control the foreign exchange rates.
However, monetary and banking proclamation No. 99 of 1976 came into effect on September
1976 to shape the Bank's role according to the socialist economic Principle that the country
adopted. Hence the Bank was allowed to participate actively in national planning, specifically
financial planning, in cooperation with the concerned state organs. The Bank's supervisory area
was also increased to include other financial institutions such as insurance institutions, credit
cooperatives and investment-oriented banks. Moreover the proclamation introduced the new
'Ethiopian birr' in place of the former Ethiopian Dollar that ceased to be legal tender.

2.2. Market Demand Size of the Banking Services

In the couple of years ago the market for banking services was not good that was because of the
existing system of making transactions and the knowledge of the societies. The people were not
practicing saving of money in the bank rather they put the money in the secrete place of in round
of the people lived for. Now the society’s attitude and knowledge have been changed very well.
Not only the educated one but also the people in countryside are being using the banking
services. The fast growing business activities create a large market for banking industry. In
general the advancement in economy, technology, politics, culture and education and attitude
change brings a big market demand size for this sector.

2.3 Products and Services of the Banking Industry

 To mobilize deposits in the form of savings, demand and fixed time deposits
 To grant loans and advances
 To render international banking services
 To open and maintain Foreign Currency Accounts for Non-resident Ethiopians, foreigners
and foreign organizations entitled for such facilities;
 To provide international and local money transfer services
 To engage in Foreign Exchange transaction services and Correspondent Banking services
Local and abroad consumptions of banking services. The banking service can be consumed
locally and internationally. Some of the local services are:
Deposit Services: The Banking industry renders normal deposit services namely; saving,
demand and fixed time deposits. These all can be provided for local users.
Credit Services: Banks facilitate and give credit services to those who are engaged in domestic
trade, industry, construction, hotel, transport and other sectors. The major services are short and
medium term loans, merchandise loans, overdraft facilities. The international banking services
are:
 Import and Export Letters of Credit,
 Cash against Document (CAD),
 Purchase and Sale of Travelers cheques,
 Purchase and Sale of Cash Foreign Currencies,
 Issuance of Letters of Guarantees,
 Inward and Outward Money Transfers,
 Maintenance of Accounts in Foreign Currencies for individuals and organizations entitled for
such facilities. These are some of the banking services that can be provided international

2.4. Market Share of Players in Banking Industry

The market share of the banking industry can be determined using Deposits, loans and advances,
profit or reserves in the national bank of Ethiopia.

Table 3.1 Market share using net profit (in millions of Birr)

Bank 2006/07 2007/08 2008/09 2009/10

Dashen 188 239 250 324

Growth rate 25.3 27.1 4.6 29.6

Market share 29 31.8 27.2 22.5

Awash 143 143 143 248

growth rate 0 0 73.4

Market share 22 19 15.5 17.3

Abyssinia 67 15 100 141

growth rate -78 567 41

Market share 10 2 10.9 9.8

Wogagen 112 139 181 223

Growth rate 24.1 30.2 23.2

Market share 17.4 18.5 19.7 15.5

NIB 76 113 154 201

Growth rate 48.7 36 30.5

Market Share 11.8 15 16.7 14
LIB -4.7 -0.8 4 50

Growth rate 82.9 550 123

Market share 0 0 0.43 3.5

UB 64 91 94 174

Growth rate 42.2 3.2 85

Market share1 9.9 12.1 10.2 12.1

CBO 2.4 12 2.4 25

Growth rate 400 -400 942

Market share 0.37 1.6 0.26 1.7

Zemen bank -9.1 51

growth rate - - - 660

Market share 0 3.5

Total net profit 645.3 751.2 919.3 1437
Average profit 80.67 93.9 102.14 159.67

Source: Nation Bank of Ethiopia

The above table depict that the average profit of the bank industry shows an increasing trend
from year to year

2.5. Industry Structure- Porter’s Model

The porter’s five forces have vital contribution for the profitability y of the company within the
industry; the same is true in the banking industry. The existence of more number of competitors
makes the price to come down and industries apply various special strategies to attract potential
customer and retain existing ones (Porter, 1998). There is continuing interest in the study of the
forces that impact on an organization, particularly those that can be harnessed to provide
competitive advantage. The ideas and models which emerged during the period from 1979 to the
mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the
ability to earn return on investment that was better than the average for the industry sector
(Thurlby, 1998).
 Rivalry among Existing Firms
Recently, the rivalry among the existing banking companies is moderately good though some
previously established banks control more (as shown in market share section). Even though more
new banks are coming to the market, still the banking sector is at the introduction stage and this
shows that the current rivalry among the banks is not much stiff. So, even not competitive banks
are not in a position to be kicked by others.
 Threat of New Entrants
In the current reflecting situation of Ethiopia, a number of new flourishing businesses are
come in to existence, banks too. Probably in the near future the banking sector competition
will be increasing and threats may come and high
 Threat of Substitute Products/Services
Threat of substitute product/services is moderate due to the coming of saving and credit
institutions in different parts of the country and using of service facilitating technology like
ATM. Besides, in these days the government of Ethiopia is paying due attention in organizing
saving and credit institutions which may replace the banking services. But on the other hand, the
increased saving power of individuals and the coming of large corporations to the business
environment make an expectation more in increasing the number of customers of banking
industry. Therefore, in balancing the two extreme situations, it is possible to rank the force of
threat of substitute as moderate.
 Bargaining Power of Buyers
On the output side, firms either sell directly to the final customers, or enter into contracts with
intermediaries in the distribution chain. In all these transactions, the relative economic power
of the two sides is important to the overall profitability of the industry firms. In the banking
sector customers may bargain in interest rate on deposits, loans and on service charges. But
customers in this sector do not have a direct bargaining outcry in dealing with these issues.
Therefore, the bargaining power of customers is low.
 Bargaining Power of Suppliers
On the input side, firms enter into transactions with suppliers of labor, raw materials and
components, and finances. Suppliers are powerful when there are only a few companies and
there are few substitutes available to their customers and here there is less number of creditors.
2.6 Hijra banks Project idea identification, assessment and implementation
problems

2.6.1 Background of the Hijra Bank

Hijra bank is established after NBE directive No.SBB 51/2011 allows full-fledged interest
banks. The directive full-fledged interest free bank as ‘a banking business in which mobilizing or
advancing of funds taken in a manner consistent with Islamic Finance Principles and mode of
operation that avoids receiving or paying interests’, (NBE’s Directive No.SBB 51/2011). Hijra
bank was idea was generated by five individual by establishing an enterprise which gives varies
training, consultation services related with interest free banking and other sharia based financial
services. When National bank of Ethiopia allows full-fledged banking in Ethiopia, the enterprise
established for training and consultation purpose makes various meeting and starts to add more
influential individuals from different corners of the country and add this influential individual as
promoters of Hijra banks. Total the number of individual reaches 36 by incorporating very
influential individual from different regions. The 36 individual developing a strategy to establish
Hijra bank by using the formation strategy i.e the strategy which includes all parts of society.
Lastly Hijra bank gets a license to sell, share and starts it journey to become full-fledged interest
free banking in Ethiopia. Hijra bank capital during its establishment was 1.2 billion birr, of
which 700 million birr was paid by 9,000+ small farmers, peasants, unbanked communities, and
small traders from all parts of the country. The Bank is the second full-fledged interest-free Bank
in Ethiopia.

The opening of these IFBs has been a relief for the Muslim community, which was financially
excluded due to the absence of Sharia-compliant banks in the country. Hijra was established as a
bank of the nation and all regions based on the attentive operation plan and strategy. The Bank
stands to satisfy its shareholders, customers, and all community by putting its contribution to the
national economy and providing full-fledged banking service in all regions of the country; Hijra
Bank has demonstrated its strict adherence to its core value of inclusion, fairness, and diversity
in all its operations. It can be concluded that Hijra Bank is a center for diversity and inclusive,
reflected in branch expansion, resource allocation, and staff recruitment. Currently it has more
than 75 branches throughout the country.

2.6. 2 Vision, Mission and Value statement of Hijra bank

 Vision of Hijra Bank: To be the premier Partner in Ethical Banking.
 Mission of Hijra bank: To provide innovative and customer-centric sharia
compliant banking service through inspired professionals and state of the art
technology while creating sustainable value to our stakeholders.
 Core values of Hijra bank:
H: Honesty- It is the core value of a banking business. It implies serving customers with highest
moral standards. It aligns with the ethical business philosophy of Hijra bank. It encompasses
moral values such as moral integrity (Sharia compliance), ethical, and customer confidentiality.
I: Inclusive-Inclusive in this context implies our commitment to create environment where all
customers are provided with equitable access to our service.
It also includes our commitment to create work environment that makes every employee feel
valued and that celebrates diversities.
J: Just- One of the components of Islamic banking is to be morally fair/just in all our business
dealings with the customers.
Just also refers to fairness in resource allocations and meeting the economic interests and needs
of financially secluded communities.
R: Responsible-Responsible refers to being dependable and honouring our commitments.
It also implies that the bank acts in accordance with the expectations and interests of its
stakeholders.
A: Agility-Agility in this context means the bank’s ability to be responsive to changing
conditions, to quickly adapt/adjust to meet the needs/expectations of the market and customers.
Agility is highly required quality to thrive in an ever-changing banking industry.

2.6.3 Man Power Development

Despite the fact that over 80% of people worldwide report that religion constitutes an
important part of their daily life (Sedikides, 2010). Religion has a significant effect on
shaping the character of employees (Human resource), culture, society and over all organizations
& Many HRM issues in organizations have their foundations in religion (Ali, et al., 2000; Tayeb,
1997). Islamic Principles and Human Resource management has an interesting keen relationship.
The general Islamic principles of HR managers includes: Trust, trustworthiness, Sincerity,
justice, Accountability, Equality, patience, consultation, Humility, humbleness, Equality, Ethics,
fairness, loyalty, moderation, realism, selflessness, knowledge & practice, proficiency, intention,
kindness, readiness, self-improvement ,equality, etc…
Today, globally operated organizations are faced with numerous challenges which forces to
continuously redesign HR policies, principles and practices (Abbas, 2010) . One of the challenge
is the act of discrimination during recruitment selection and other HR matters because favoritism
and preferences influences the managers decision making process. Hence it is better to all
managers and employees to deal with organizational policies, principles and practices or ethics
Over all Islamic Principles helps in teaching the various manners in which, we can
manage our most valuable assets(human power) effectively .Hijra bank follows the following
Islamic hunan resources management principles:
 Recruitment & Selection : Justice/Adl
 Trust/Amana, Sincerity/Ikhlas
 Performance appraisal , Consultation/Shura,
 Trust/Amana, Sincerity/Ikhlas
  Promotion & Transfer : Justice/Adl
 Compensation and rewards, : Justice/Adl
 Employee relation, Patience/Sabr, Consultation/Shura, Trust/Amana
 Arbitration/ reconciliation and Patience/Sabr, Justice/Adl. Consultation/Shura,
Trust/Amana
 Termination : Justice/Adl,

2.6.4 Service Focus of Hijra bank

Customer means any Natural person who have legal documents or legal entity with whom the
bank agrees to conduct a business;
Customer – is a purpose of the business! It can be a:
Deposit account holder,
Borrower,
Guarantor,
Local /foreign transfer beneficiary, correspondent bank, and
Prospect customers other user of any of the services provided by the bank.
As Hijra bank service delivery agent
 Discipline
 The ability to serve, to sell and to build good relationship
 Good communicator
 Positive attitude
 Attention to detail(the ability to stay focused)
 Compliance with sharia standard banks policy procedure
 Develop confidence
 Through trading via muraban financing
 By constructing buildings through Istisna
 By engaging in the import & export trading
 By working together on feasible projects
 Extending fee-based service to the customers like guarantee services.

2.6.4.1 Murabaha Financing

Murabaha is often used as an alternative to interest-based loans in Islamic finance. It is a sale

transaction where the seller pays off the cost of the goods being sold, as well as a profit margin
that the seller adds on top of the price. This complies with Islamic law principles because the
profit earned is based on selling tangible goods rather than charging interest on a loan the Bank
provides interest free bank loans,(direct interest gains from deposits),the service include interest
free mortgage loan,interest free vehicle loan,islamic loans interest free.

2.6.4.2 Mudarabah & Musharekah

 Mudarabah

is a profit and loss sharing partnership in which one part (the investor) provides capital to
a business venture, and the other (the entrepreneur or mudarib) manages the project. The
profits generated by the investment are shared between the investor and the entrepreneur
according to a predetermined ratio, while the losses are borne by the investor alone.

 Musharakah

is similar to Mudarabah, but in this case, both parties contribute capital to the venture and
share in profits and losses.

2.6.4.3 Wakallah

This refers to an agency or representation contract. It is an agreement in which the principal

appoints the agent or wakil to represent them and act on their behalf in a specific matter. The
Hijira Bank agent is given the authority to make decisions and take actions on behalf of the
principal but is also held responsible for the consequences of those actions.

2.6.4.4 Istisna & Salam

 Istisna

is a contract for the manufacture and future delivery of a specific good. It is used to invest
in producing goods that still need to exist, such as buildings or infrastructure projects.
Under an Istisna contract, the buyer pays the seller earnest money and then makes the
remaining payments after manufacturing the goods. The good is delivered to the buyer
when the work is completed.

 Salam

is a contract for the good delivered to the buyer with only prepayment, and the rest of the
payment is issued at predetermined intervals. It is used to finance the purchase of goods
already in existence, such as agricultural products.
2.6.4.5 Haramain

a) Haramain Wadia savings account for Hajj and Umrah

The Haramain Wadia Hajj and Umrah Savings Account Service are for customers who want to
make Hajj and Umrah trips by saving money in advance permanently/regularly at a particular
time and making deposits by Haramain system, meaning that customers can decide the time and
amount of savings every month.

In addition, Hijira Bank provides features and benefits like an easier way to perform Hajj and
Umrah for religious followers. The fact that the account is open for all Ethiopians living in the
country or abroad (foreign currencies users ) with no age limit makes the diversified community
inclusive and aware of what the performance of the Hajj system is like, and customers who save
50% of the amount needed for the Hajj and Umrah journey through regular savings, the Bank
lends the remaining 50% for free through Qard Al-Hassan.

b) Haramain Hajj/Umrah Installment Saving

This account’s unique feature is that Qard Al-Hassan offers up to 50% free loans to customers
who can make fixed monthly savings for 1-5 years, depending on the situation. The account is
open for all Islamic communities regardless of location and age difference (children can open
accounts through their guardians ); the Bank works to make travelers aware of what the
performance of the Hajj system is like.

2.6.4.6 Hijira Bank Digital Banking

 Mobile Banking:

Allows customers to access their bank accounts and perform financial transactions
using a mobile device, check their account balances, view transaction history,
transfer money between accounts, pay bills, and more, all from their mobile
devices.

 Internet Banking: allows customers to manage their finances and complete

transactions anytime, anywhere, as long as they have an internet connection.
Customers can view their account balances, and transaction history, pay bills, transfer
money between accounts, and more, all through a secure website and the additional
layer of security, as transactions are protected by login credentials and other security
measures
 ATM: Hijira Bank allows customers to access their accounts and perform transactions
anytime, with PIN protected transaction system as long as the ATM is available
  USSD: allows customers to access their bank accounts and perform financial
transactions using their mobile phones without needing a smartphone or internet
connection. The customer is only expected to dial *827# on a mobile phone, which
connects them to the Bank’s USSD service. They can then follow the prompts to
complete transactions or access information about their accounts.

2.6.5. Market Expansion

The bank has be established as one of full-fiilleged Islamic bank with formation method of
establishment which involves with community as owners of the bank. This strategy makes the
bank to expand in fast and can take large market share in interest free backing. The bank makes
an agency agreement with Western Union Money Transfer, Dahabshil, RIA Company to expand
its share in the international money transfer market and earn much needed foreign currency. The
bank was able to satisfy the needs of existing customers and attract new ones due to the
increased operating efficiencies, service quality and flexibility in accessing information and
using modern technologies.

2.6.6. Financial Measures

2.6.6.1. Financial Performance of Hijra Bank

Hijra Bank has shown a notable achievement in all areas of its operation. It has become one of
the major players in the Islamic banking industry. This could easily be observed by looking in to
the major performance indicators.

In the following sections the performance of Hijra Bank with regard to deposit mobilization,
financing capacity and customer bases. Hijra amassed total assets of 2.28 billion Br, and deposit
mobilized 1.33 billion Br savings and over 134,845 customers for its sharia compliant services
during its first year.

At the end of June 2023 the bank able to mobilize more than 5 billion birr deposit, more than 4
billion birr financing service and more than 300,000 customer base.

2.6.6.2. Non- Financial Measures ( BSC)

The collision between the irresistible force to build long-range competitive capabilities and the
immovable object of the historical-cost financial accounting model has created a new synthesis:
the Balanced Scorecard. The Balanced Scorecard retains traditional financial measures. But
financial measures tell the story of past events, an adequate story for industrial age companies for
which investments in long-term capabilities and customer relationships were not critical for
success. These financial measures are inadequate, however, for guiding and evaluating the
journey that information age companies must make to create future value through investment in
customers, suppliers, employees, processes, technology, and innovation.

The Balanced Scorecard complements financial measures of past performance with measures of
the drivers of future performance. The objectives and measures of the scorecard are derived from
an organization's vision and strategy. The objectives and measures view organizational
performance from four perspectives: financial, customer, internal business process, and learning
and growth. These four perspectives provide the framework for the Balanced Scorecard.
Therefore, the non financial measures of united bank can be measured using the parameters and
considering the four perspectives of the BSC.

I. Financial Perspectives
The financial perspective of the BSC can be expressed in different ratios which can reflect the
profitability of the company and it is also known as shareholders perspective. Therefore, since
the financial ratios analyzed in the previous section already explore the financial matters.

II. Customers Perspective

According to Hijra bank annual reports there is high concern of attracting potential customers
and satisfying existing customers.

III. Internal Business Process Perspective

Similar with the above perspective Hijra bank mentioned in its value statement that it has got
committed to quality and growth and lives its values which can serve as a tool to provide
attractive long term returns to the shareholders. Furthermore, critical systems have been
deployed by in-house capacity such as Manifilo Money Exchange system; Control self
Assessment (CSA) and I-support system. In addition, the bank performed integration and
enhancement of its systems to provide RIA, Western Union service and Dahabshine. The bank
envisages providing card and wider electronic payment streams in the next fiscal year to satisfy
customers` demand and maintain its technological leadership.

IV. Learning and Growth Perspective

This perspective also known as employees perspective and concentrates in identifying the
activities performed in order to improve the skills of employees so that their performance would
be improved. The increase in number of banks and the rapid expansion of existing ones
intensified the competition for highly qualified bankers and remained being a challenge to the
industry. The bank continued to invest in the training of its staff to improve their skills.
Accordingly, during the period under review, the total number of employees trained at Hijra
bank and other institutions reached 650. With regard to continuing education, the total number of
staff enrolled in higher learning institutions increasing from time to time. Therefore, in this
regard the bank is doing a lot of efforts to improve and upgrade the performance of its
employees.

2.7. SWOT analysis of Hijra S.C

A. Strengths:
 it is one of full-fledged Islamic or ethical bank in Ethiopia that renders higher standard
ethical banking services
 It has low non-performing loan than the industry average
 It has good relationship with many domestic and foreign banks, especially with other full-
fledged banks like zemzem, shebelle and Rammis bank
 It has good acceptance in the society
B.Weakness:
 Most branches are concentrated at the capital city and the number of branches are not
available in all corners of the country
C. Opportunities:
 The banking industry in Ethiopia was showing continue growth, special interest free banking
showing higher growth from year to year
 Availability of enough man power
 The growing pattern of business activity in the industry
D. Threat:
The rapid increase in number of banks and National banks Capital requirement increasing from
time to time
 Higher inflation and political instability in the country may negatively affects Hijra and other
newly established banks as they are not strong in capital and other wing of competitions
 Continues changing directives of National bank may affects the newly established banks

Chapter Three

3. Concluding Remark
The final section of this paper stands to conclude on the project implementation.
 3.1. Encouraging Factors
A. Economic Factors
 High level of security of persons and property
 The investment climate in the nation is good
Government commitment to private sector and Safe and secure working and living
environments, identified by the U.N. and the International Chamber of Commerce (ICC) as key
assets for investors in Ethiopia.
 The large and fast growing domestic market and proximity to international market offers good
prospects for investment.
 Incentives for private investment and promote the inflow of foreign capital and technology
into Ethiopia; customs import duty; loss carried forward, exemptions from payment of export
customs duties are granted as incentives.
 Government has been and is still engaged in comprehensive infrastructure development
programs in roads, telecommunications, higher institution, health centre, energy and others.
B. Industry Factors
 The banking Industry in Ethiopia is at the introduction stage; hence there is untouched market
considered as a potential market. In addition to this, the government of Ethiopia reserves this
investment arena only for native investor to reduces the gap of competition and empower the
local dweller investor.
 The fast growing business activities create a large market for banking industry. In
General, the development in the economy, technology, politics, culture and education
and attitude change brings a big market demand size for this sector.
C. Company Factors
 continuing with its uninterrupted growing trend, total deposits of the bank as at June
30,2023, reached birr 5 billion , it c more than 300,000 and branch expansion reaches more than
75 branches This evidently indicates that Hijra bank is indeed moving forward to fulfilling its
vision of becoming the “ premier partner in ethical banking .”
 The trust of a great many customers has made it possible for the bank to increase the volume
of deposits in a manner that is progressive and consistent for the 2 years in a row.

3.2. Risk Factors

A. Economic Factors
 There is no adequate investment credit and insurance services
 Even if there is relative man power, the working habit of employee in the nation is not good.
 The price intervention and ceiling made by the government is the major cause for
systematic risk for the companies
 There is no free exit from the investment arena because of stock exchange market is not
available in the market.
 Unethical competition from conventional banks can affects the banks performance directly
or indirectly.
 B. Industry Factors
 Penetration of the market and taking the major market share considering the regulation of
National Bank of Ethiopia requires a lot of task.
 As most of the man powers were coming from the conventional banks the working culture
the employees developed in conventional banks my need to bring to Islamic or ethical
banks, this may affects the banks working culture
 The introduction and fail of technology.
 The availability of a productive asset so as to satisfy the customer.

C. Company Factors
 As interest free baking is new and needs continues efforts to create awareness with our
society , it needs more strong marketing strategies
 Operational risk resulting from inadequate or failed internal processes, people, and systems
or from external events
 Financing and advances outstanding in the bank reached birr 2.5 billion; this requires
continuous assessment of their credit worthiness otherwise bad debt may increase.

Therefore, having the data of the overall economic growth of Ethiopia, the growth and\
attractiveness of the banking industry through the increment of private investment and the
privatization of public enterprises as well as through the awareness of the public about the
importance of having bank as a means of saving and encouraging investment, it is worth
something to invest in the banking industry in Ethiopia. Specifically, with regard to the
Hijra Bank , as shown the performance of the bank from the previous years it shows an
increasing of its financial and non –financial performance and also evaluating weights of
encouraging and risk factors shows that the encouraging factors to invest in Hijra Bank
outweighs than the risk factors .Furthermore, the number of branches ,value of total capital ,
annual profit , total asset, is increasing from year to year so it is apparent for everyone
inevitability putting his/her money on it. Hence, I have decided to put my wealth either as an
investor or as overall owner by acquiring the stock of the Hijra bank.
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Islamic financial services board, (2022) report on Islamic financial services industry stability
Email: ifsb_sec@ifsb.org
NBE’s Directive No.SBB 51/2011
https://careers .addisfortune.info
https://banksethiopia.com/banks/hijra-bank/