Interest Free Banking has been a new concept in Ethiopia until 2011. In Ethiopia, it has been rnalmost six years when the first Interest free bank makes its start. Interest free banking is an rnalternative banking system based on Islamic principles doing the business side by side the rnconventional banking system. For this alternative IFB business, Wegagen Bank has to know the rnawareness, understanding and perceptions of its customers towards the product and service of rnIFB. The purpose of this research is to examine the level of awareness, understanding and rnperceptions of Wegagen customers towards interest free banking product and service. In rnaddition, this study also aims to investigate if any demographic factors influence the awareness, rnunderstanding and perceptions of interest free banking products and services of Wegagen Bank rncustomers. A total of 180 respondents from different branches in Addis Ababa are selected for rnthe purpose of this study. For the analysis, one way ANOVA and Pearson Correlation Coefficient rnwas adopted to analyze the results. The results show that the level of awareness towards Islamic rnbanking deposit products are considered as high however the level of awareness for financing rnproducts are very low and it needs awareness campaign in promoting the features of IFB rnfinancing to the target customers to enhance the level of awareness for financing products. The rnunderstanding level towards Islamic products is very high except the understanding for Islamic rnbanking is available for Muslims and non-Muslims is very low and the bank should do in rnincreasing the understanding of Muslim customers by promoting the product is available for rnboth Muslim and Non-Muslim customers as far as the sheria principle is respected. As for rnperception, the bank should exert its maximum effort in segregating the IFB business from the rnconventional business because majority of the respondents perceive that the service of IFB is rnsimilar to conventional banking system and having this perception by customers would adversely rnaffect the growth of the business by repealing potential customers from the bank. Another rncorrection action that will be taken by the bank to have the right perception by the customers is rnthat service delivery for IFB products should be right and do the business in compliance with the rnreligion principle as well as the NBE directives.