War & Microfinance Institutions in Yemen
In 1997, the concept of microfinance was introduced to Yemen through the Social Fund for Development (SFD), which owns large stakes in all microfinance institutions in Yemen. However, it was not expected that there would come a time when MFIs would cease to exist in Yemen. The strategic objectives of these MFIs are to reduce unemployment and poverty, provide equal opportunities for youth and women, and support small and medium enterprises to contribute to the national economy of Yemen.
MFIs in Yemen operate with the Murabaha system, which was considered a legal and legitimate ground until March 22nd, 2023. On this date, a new law was issued in the areas controlled by Ansar Allah (Houthis) prohibiting usury dealings, including interests, commissions, and increasing rates in Murabaha contracts. As a result, all MFIs were closed. Before making the decision, some MFIs tried to address the issue of high Murabaha rates that were influenced by various factors, such as high-risk rates due to the ongoing conflict in Yemen.
In fact, the difficulties facing the microfinance sector in Yemen have increased since the outbreak of the war in 2014. The main problem for this sector has been exacerbated by poor governance and limited access, especially for the neediest groups in rural and remote areas. It should be noted that only 10 entities in Yemen provide financing services, including banks, institutions, and programs. They all use similar methods and tools, which weakens competition between providers of financing services. Nevertheless, according to figures issued by the SFD, the number of creditors is clearly increasing, as it reached more than half in the past year compared to the previous year. Recently, the value of existing loan portfolios has increased by up to 60% compared to last year. Moreover, services aiming to achieve financial inclusion among various sectors are now doubling, specifically the microfinance sector competes heavily with the commercial sector.
It is concerning that MFIs are being closed at a time when they need support to popularize their services in target areas and increase funding to achieve goals, such as alleviating poverty and unemployment, empowering youth and women, and supporting entrepreneurship and small-medium enterprises. At this time, MFIs were building trust with clients and trying to expand their activities; however, this was not enough to prevent closure and cessation of activities that help generate income for the poor.
Ameen works as a microfinance officer in a MFIs. He visits small and medium entrepreneurs daily to provide them with ideas and ways to develop their projects and obtain financing from his foundation. It also assists in agricultural, animal and commercial projects. In mid-March, he traveled to rural Sana'a to start the procedures for financing several projects. Suddenly, he was disappointed with the decision of closure, which will prevent many young people from obtaining loans to develop their businesses.
Abdul Hadi operating his store.
Abdul Hadi is one of the young people who have benefited from microfinance in Sana'a. He opened a new shoe store and applied for a loan, which was in the process of being finalized before the decision. "I was counting on the loan that I would get to sell the goods during Eid al-Fitr season, but I was surprised by the notice of stopping the deal, which caused a huge loss," he says. This decision greatly affected his earnings during the season, and he has to wait another year for a new season to come around before he could recoup his losses.
