The accommodation of Islamic banking has to be accompanied by the development of efficientrnand effective Policy, regulatory and supervisory framework. Historically, Islamic banks operatedrnunder the conventional setup, but with the expansion of the Islamic banking industry, countriesrnhave adopted separate regulatory structures based on their institutional setup and marketrndynamics. This segregation of regulatory frameworks establishes the need for separaterngovernance structures, given that the socially responsible objectives and operational efficiency ofrnIslamic banking cannot be achieved under conventional setups. International agreements such asrnthe Basel core principles which aim to provide level-playing field regulations for all banks, inrnfact, do not take into account the nature of the Islamic banking, hence IFSB standards,rnGuidelines and core principles were established to compliment the lack of level playing fieldrnregulations in BCPs. The countries which accommodate Islamic banking are also adopting thesernadjusted standards while developing their regulatory framework.rnThis research paper examines the exiting Ethiopian policy, regulatory and supervisoryrnframework for Islamic banking by taking in to account the international standards and countriesrnexperiences. The core purpose of the study is to identify and disclose major policy, regulatoryrnand supervisory gaps, loopholes and challenges. The study was conducted mainly based onrnregulatory and supervisory analysis, interview and benchmarking international experiences. Thernfindings of the study revealed that yet the country did not yet develop the regulatory, supervisoryrnand institutional framework that enable Islamic banking to operate on a level playing field.rnBased on the result of the study, this paper opted to introduce appropriate policy, regulatory andrnsupervisory framework for the industry. Having this in mind, it focuses on the proposals andrnpossible recommendations.