FACTORS AFFECTING RISK MANAGEMENT PRACTICES OF INTEREST FREE BANKS: THE CASE OF WERABE TOWN IN SILTIE ZONE CENTRAL ETHIOPIA REGIONAL STATE

ABSTRACT A few years ago, interest<br> free banking was introduced in the Werabe town, as an alternative<br> within the conventional banking system, operating on both a window based model and full<br> fledged that adheres strictly to Sharia principles. However, its operations have faced several<br> challenges, including issues related to risks management practices. Identifying these factors is<br> crucial for implementing effectively risk management practices. Accordingly, this study aims to<br> examine the factors affecting the risk manag ement practices of interest free banks in the Werabe<br> town, Siltie zone central Ethiopia regional state. The study employed both descriptive and<br> inferential analysis to explore risk management practice hindering factors. Cross sectional data<br> was collected through questionnaires to address the research questions. 188 sample respondents<br> (manager, non manger staffs) were drawn from two full fledged and 16 window based banks<br> using simple random probability sampling method. The data collected from the questionn aires<br> were analyzed using STATA software, applying descriptive statistics such as percentages and<br> frequencies, as well as regression analysis. The results indicate that risk assessment and<br> analysis, and credit risk analysis are important factors to enhance risk management practices of<br> interest free banks in the study area . Additionally, the study recommends that Interest free banks<br> in the Werabe town need to facilitate trainings to their staffs to enhance their level of<br> understanding, identifying and managi ng the various potential risks in the banking sector.