An article describes the failure of the proposed Islamic bank ZamZam from opening in Ethiopia. I don't know the situation, so I can only offer limited comment on it, but from how this article describes the situation, the National Bank of Ethiopia issued a directive which prohibits the licensing of a wholly Islamic bank, but allows Islamic windows to operate (although I could be mis-reading the analysis of the directive, and it could be only permitting non-banking financial activities by an Islamic financial institution).
The situation resembles the difficulty so far faced in India, where Islamic banking is not allowed under the existing regulatory rules, although recently the National Commission on Minorities weighed in supporting a fresh look at changes which has led the finance ministry requesting the country's central bank, the Reserve Bank of India to reconsider.
The two cases, if I am understanding correctly (and I am not familiar enough with either country's banking laws to say definitively) relate to political questions about whether Islamic banking could fit within the country's banking laws, and potentially other objections to Islamic banking, which highlight the dilemma facing Islamic banking in several countries.
It places on opposite sides of the issue those who say that Islamic banking and finance are fundamentally different from conventional finance with those more pragmatically minded who point to the similarities between conventional and Islamic banking. The former are generally coming from the perspective of Islamic economics, which views Islamic banks as unique entities that are not really 'banks' the way a bank is commonly understood. The latter, are the Islamic finance professionals who view Islamic banking (and finance) as just banking using different products to avoid violating the ban on riba by structuring products to make profit from leasing, or cost-plus sales.
On the issue of where Islamic banks fit into the regulatory framework, I side with the latter camp and think that it is possible to offer banking services in a Shari'ah-compliant way, where the economic outcome is largely the same. That does not mean that this way of doing business is optimal; it may offer the same service at higher cost. But it is taking the regulatory system at its face value and finding a way to work within it to offer products that appeal to consumers who would otherwise be unbanked. That, I think is a positive, as long as the products are not exploitative and the current state of Islamic banking is not viewed as the goal (that is, as long as it is accepted that there is significant room for improvement).
But, Islamic banking should not be quashed just because it is 'Islamic'. I know quite a bit about that living in the US where a substantial portion of the political rhetoric about Islam (representing still a small minority of the population) agitates against Islamic banking and finance on the grounds that it either finances terrorism or is a step on the road to 'imposing Shari'ah'. Those arguments are nonsense, but can hold sway in political circles and can make Islamic banking and finance more difficult to offer by limiting the regulatory flexibility needed to deal with Islamic banking and finance as what it is: an alternative structure for conventional banking services, designed to avoid riba, gharar and the other prohibitions.
While I think Islamic finance offers a compelling promise, I lack the demand for the product as it exists today simply because it is 'Islamic'. But I am not a Muslim, and quite a few million Muslims disagree with me and will choose a product because it is approved as Shari'ah-compliant, and I think they should have that right. If it offers a competitive economic proposition to what I get today from conventional banking (I bank with a credit union), then I will reconsider. However, so long as a banking institution can operate within the rules governing capital adequacy and soundness, I think it should be permitted, and there should be flexibility to regulations to allow for different product structures that accomplish the fundamental business of banking. Prohibiting something just because it is 'Islamic' is a pointlessly retributive exercise.