Retail banking services in Yemen: A brighter future [Archives:2008/1117/Business & Economy]

December 3 2008

By: YemenTimes Staff
Although banks have been in operation in Yemen for over 40 years, banks still have a very limited consumer base in Yemen, mainly limited to corporations and other entities which have to carryout banking as a part of their business dealings, with a very limited individual consumer base. There are eleven commercial and Islamic banks operating in Yemen. YemenTimes undertook a survey to understand how the activities of commercial banks are valued to individual consumers, the points of strengthens and weaknesses and individual takes on the banking sector.

Consumer habits

Traditionally, The Yemeni consumer has not been welcoming the concept of banking as a mechanism for savings, investment, or financing, “Yemeni consumers habitually save their money under their mattress”, said Mohammed Ahmed, a retailer, adding that the culture of dealing with banks does not exist still, people will not open bank accounts unless they are absolutely obliged to, and even thereafter they do not maintain the account with the bank unless they routinely need it.

Amat Al-Sallam Abdullah, A school teacher, agrees saying that there is a fear from the banks, a fear that savings will not be accessible, or the bank might become bankrupt or move away. She says that there is an old saying that my money better be in my custody to help me whenever I need it, adding that this logic doesn't fail in spite of the change in time.

“Plus banking services are illegal in Islamic law, they give you a fixed returns without any direct involvement in business or taking any risks” says AbdulGhani Al-Maqtari, a university student, stating that dealing with banks is being avoided because of the doubt that the money will be polluted as banks are engaged in Riba, which is providing fixed returns for the money and requesting additional fixed amounts for the loans.

Saving is a good idea, Says Bassim Mahmoud, an advertising agent, and people do welcome this idea, but they hesitate in dealing with banks, that's why many people save at the postal office because a post office is more user-friendly, doesn't have long queues, and have products developed for individual users, not corporations. This is why individuals dealing with banks might feel out of place, especially first timers.

Targeting more individuals

More recently, banks have started offering several individual client-friendly services, such as spreading Automatic Teller Machines (ATMs), providing a range of products such personal loans, car loans, and easy credit. Says Samah Al-Attiya, an accountant: “Since my company transferred my monthly salary to be paid through the bank, I've become more familiar with banking services and I am more interested in dealing with banks.

“I bought my car using a loan”, says Karim Bin Zain, an IT specialist, adding that through the loan, he has been able to buy the car he wanted, even though he initially didn't think he could afford it. He says that after completing all the required paperwork, he received the car in the same day he submitted the loan request.

Saeed Abdullah, an engineer, said that he's been able to furnish his whole house when he got married thanks to a bank loan, he added that he was able to get married one year ahead thanks to the flexible terms of the bank, “all you need is two colleagues to guarantee you to the bank in case you default.

But still, many individuals claim that banking services are over-charged for, Mona AlAhmadi, a personal assistant, says that she had bought a laptop computer through installments. Not only she had to pay 12 percent extra on the purchase price (interest), but she also had to buy it from a 'partner' retailer at an augmented price.

Similarly, AbdulRazak Ismael, a broker, says that he had applied for loans to buy some real estate, initially, he was asked to pay around 10 percent in interest, and after agreement the bank declined his application once and for all, claiming that the bank no longer processes loans for real estate purchases.

Favoring Islamic Banks

Several respondents indicated that they prefer to deal with Islamic banks, due to the more favorable perception associated with Islamic Banks, Says Wadea Salman, an entrepreneur, religious clerks have approved the activities of Islamic banks, including business facilitation, as they provide loans, in kind, at a surcharge in exchange for repayment on installments. He adds that the cost of financing this way is less than regular commercial banks and has been justified by Islamic law.

Khalid Abdullah, executive in a trading company, states that dealings with Islamic banks is increasing, he adds this is because they have a larger number of clients and have associated themselves with good business ethics.

Evidently, the Central Bank of Yemen has recently allowed commercial banks to open Islamic banking sections in order to be able to compete with Islamic banks. The Central bank stated that six commercial banks have requested permission to expand their activities to include Islamic banking in order to become equally attractive to Islamic banks.

New banks coming in

Recent media reports has stated that two banks have already partnered with two gulf-based banks in order to expand their activities in Yemen and provide more competitive retail banking services, these two banks are the Yemen-Gulf bank, which partnered with the Kuwait Commercial Bank, and the Commercial Agricultural Credit Bank, which partnered with Doha Bank. The anticipated changes will still be controlled by the Central Bank of Yemen, which sets the range of interest rates and regulates the services and products offered by banks.

However, the central bank has stated that it is undertaking several measures in order to help commercial banks provide better and more competitive products targeting individuals, small, and tiny enterprises, in order to motivate banks to play a more active role in reducing poverty, and providing loans that will stimulate business growth and increase employment opportunities.