Islamic Microfinance, development of baseline industries, and making dreams come trueYemen’s Microfinance Industry: Booming potential [Archives:2007/1057/Business & Economy]
Raidan Al-Saqqaf
[email protected]
Deputy Prime Minister for Economic Affairs and Minister of Planning and International Cooperation AbdulKarim Al-Arhabi has announced that Yemen will establish the first “bank for the poor” under the name Bank Al-Amal – or the Hope Bank by the end of this year. He added that the Al-Amal Bank will be modeled on the success of Bangladesh's prize winning Grameen Bank, which is a very successful example of microfinance and rural development in the world, adding that there are over 1,000,000 prospect borrowers who, with a little cash, can be involved in positive and profitable economic activity, and thus, providing employment and livelihood for themselves and their families.
Al-Arhabi said that the Social Fund for Development will be activly involved in the set-up of Yemen's first Microfinance credit bank. He added that the Social Fund has developed several Small and Micro Enterprise programs with the objective of providing credit to small and tiny enterprises. Further, he stated that the Fund has adopted global best practices and have made tailor-made solutions for the Yemeni borrowers in terms of the amounts required, targeting most impoverished areas, and in fact developing an Islamic microfinance product to ensure that all segments of the society can borrow from the fund through their respective professional cooperatives and charitable organizations, such as the fishermen cooperative society in Hodeida and Hadhramout as well as agricultural societies, and so on.
There are several spin-off micro credit programs that serve a total of 30,962 clients who are actively borrowing, in addition to 28,192 active savers (March 2007), with 156,203 loans valued at 7,646 billion Riyals, involved in a wide range of economic activities from agriculture and fisheries to handicrafts, transportations and other services. While Statistics from the Social Fund indicate that the successful loan recovery rate ranges from 96 percent to 100 percent.
Minister of Planning Al-Arhabi has further added that Al-Amal bank would boost popular demand for micro credit loans in order to grow the number of borrowers especially among “the talented poor”, describing the Yemeni public as highly business oriented and can become very successful entrepreneurs. He also specified that the most important effect such a program might have is providing employment and enabling people help themselves.
However, he expressed the hardship in terms of introducing the concept of “borrowing for business” to the Yemeni society, indicating when Yemeni people need liquidity they either borrow from their friends and neighbors or sell any of their property, adding that it is hard for Yemenis to sign up to a loan where there are definite repayment terms and a regular monitoring mechanism, because of a social complex resembling in commitment. But he also said that there is a cultural change taking place and that people are more aware and more interested in microfinance.
Mr. Mohammed Saleh Al-Lai, head of the Small and Micro Enterprise Development Unit within the Fund, has stated that although the fund has no restrictions on the sort of business activity to be carried out by the loan, it attempts to develop base-line level industries that are more suitable and inline with the marketable activity of their respective locations, for example in Taiz governorates there are several micro credit programs focused on milk products, diaries, and cheese products which are produced in a cooperative manner.
He also added that the Social Fund for Development have set up an agency for micro and tiny enterprises development, the agency's prime focus is on the technical and managerial training, research activities, and consultation services, with a special focus on technology and the technical developments that might be helpful for the enterprises' development and growth.
“Sometimes the need is to train them on how to market their products and services, how to package it, how to expand the market prospects, and create a product that suits the needs of consumers in the local market” Al-Lai added.
Al-Lai also told the Yemen Times that the work of the Social Fund for development affects over 310,000 small and tiny enterprises employing over 500,000 employees, adding that the Small and Tiny enterprises sector is the largest employer in the economy and the Fund has a long-term strategy which focuses on building several base-line industries in the economy, he said that if we can grow the number of total people employed in tiny enterprises to 3 per enterprise, therefore we would have a solution to Yemen's unemployment problem.
The Missing role of the private sector
In spite of the great potential for micro credit in Yemen, bankers have taken the backseat in the development of the industry. In fact, Minister of Planning Al-Arhabi has indicated that the Social Fund has held talks and negotiations with several banks in Yemen in order to introduce micro credit products to the Yemeni Market, stating that the Fund has offered technical know-how, administrative support, and other types of support in order to develop a product range, however, he said, the Yemeni bankers have let us down in this regard, forcing the Fund to buy-in Al-Amal bank the stake which was allocated to be bought by the private sector.
However, his Excellency has stated that the bank's stake is going to be sold to two Saudi investors who are interested in Al-Amal bank, adding that there are several other regional bankers, who are currently planning of expanding their operations into Yemen and are working on strategies in order to cater for the needs of the micro credit segment. Additionally, he added that German Development Bank Kfw has offered to establish an other pro-poor micro credit bank in Yemen during the coming few years.
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