While Sharia compliant investment avenues are now becoming available in mostrncountries, in Ethiopia, most of the developments' of Islamic finance have taken placernin the last four years.rnThis study presents new evidence on awareness, prospects, challenges andrnopportunities of Islamic banking in Ethiopia that are actually consistent with whatrnIslamic Banking literature has revealed about the operations of Islamic bankingrnelsewhere. To do so, descriptive research design of cross-sectional survey methodrnwhich is be observational in its nature is used to realize the objectives of the study.rnTo be specific, the analysis suggests that there is low level of awareness about thernoperations of Islamic banking while respondents with different background has shownrnstatistically significant variance in terms of awareness, gross misunderstanding andrnwidely held long standing misconceptions about Islamic banking operations.rnIn addition, respondent 's prospects assessment score with regard to The operations ofrnIslamic banking is high and higher than average expected score while respondentsrnWith different background has shown significant variance in terms of their assessment.rnMoreover, lack of awareness, regulatory and supervisory challenges, institutionalrnchallenges, lack of support and link institutions, gap in research and development inrnIslamic studies as, lack of qualified human resource as well as wrongful associationrnwith specific religion and the global terrorism movements in recent times has beenrnreported as one of the major problems facing Islamic banking in Ethiopia.