Documents
Country Feasibility Studies
Yemen
UNDP Microfinance Assessment Report
Prepared as a component of the MicroStart Feasibility Mission - June,
1997
Ron Bielen,
International Consultant, and
Ahmed Aleryani, National Consultant
Table of Contents
|
ACS |
Aden Charity Society |
| ACU | Agricultural Cooperative Union |
| ADRA | Adventist Development and Relief Agency |
| CACB | Cooperatives and Agriculture Credit Bank |
| CBY | Central Bank of Yemen |
| CERWS | Center for Empirical Research and Women's Studies. Sanaa University |
| CSSW | Charitable Society for Social Welfare |
| EoKN | Embassy of Kingdom of Netherlands |
| EUTA | European Commission Technical Advisory Office |
| GTZ | German Technical Cooperation |
| HCA | Hadhrami Charity Association |
| ITSP | International Technical Service Provider |
| LTSP | Local Technical Service Provider MoI Ministry of Industry |
| MoISA | Ministry of Insurance and Social Affairs |
| MoPD | Ministry of Planning and Development |
| PCS | Peoples Charity Society |
| PFCS | Productive Families Charity Society |
| SCS | Sanaa Charity Society |
| SEDU | Small Enterprise Development Unit |
| SFD | Social Fund for Development |
| SIB | Saba Islamic Bank |
| SOFD | Social Organization for Family Development |
| UNDP | United Nation Development Program |
| WB | World Bank |
| WAPB | Welfare Association for Preventing Begging |
| YWU | Yemen Women Union |
Currency Unit = Yemeni Rial (YR) YR 1 = US$ 0.007576 US$ 1 = YR 132 (November, 1997)
OFFICIAL POVERTY INDICATORS (Based on World Bank Poverty Assessment June, 1996)
Weighted National Lower Poverty Line 1992 = YR 11,496 Per Capita Per year
Weighted National Upper Poverty Line 1992 = YR 16,488 Per Capita Per Year
Number Living in Poverty in 1995 = 3.2 million
GOVERNMENT OF YEMEN FISCAL YEAR January 1 - December 31
Yemeni microfinance is in its infancy and Yemen is not littered like some countries with failed microfinance programs. NGOs and Government alike require a ready source of information on microfinance, of international best practices that can be adapted to fit the Yemeni context. The demand for knowledge of microfinance exists however, since microfinance is client driven, the dimension of client demand must be considered.
One method of deriving potential national demand for microfinance is to use a loan size expected according to microfinance best practice to reach the poor. The benchmark of accepted loan size is less than or equal to GDP per capita, which is for Yemen was $281 in 1996. Based on the percentage of the population below the poverty line (21%), there are approximately 3.2 million Yemenis living in poverty. This represents approximately 454,000 households based on the 1994 Census.
The Government of Yemen through the Ministry of Planning and Development (MOPD) has prepared a draft Country Strategy Note (CSN. The UNDP country Team collaborated with MOPD in launching preparation of the CSN. The CSN outlines the contribution of the UN agencies in response to the requirements identified by Government in its FiveYear Plan. Although exact details are not available, the CSN focuses on seven themes:
- Human resource development (education, health and population)
- Poverty alleviation and sustainable livelihood;
- Protection of the environment;
- Advancement and empowerment of women;
- Agriculture, food security and water;
- Democracy and Decentralization;
- Strategic planning
The UNDP Country Office signed a major Programme Support Document, Poverty Alleviation and Employment Generation, with the Government of Yemen on June 12, 1997. Known by the Programme Support Number YEM/97/300/B/01/99, the document describes the Government of Yemen's five year (1997-2001) National Programme Framework for Poverty Alleviation based on the First Five Year Development Plan and assistance planned by the major donors to Yemen. The Framework is built around initiatives in four areas: Social Development (including health, education and welfare), Agricultural Development, Social Infrastructure Development, and Industrial Development. Funding for the programme is US$ 23.3 million including US$ 15.5 million of TRAC 1 and 2 resources. There is an additional US$ 17.1 million in parallel financing from UNCDF, WFP and SPR.
UNDP Programme Support will be directed to creating an enabling environment for poverty alleviation through assisting Government in formulating and operationalizing appropriate policies and initiating concrete and alternative pro-poor activities. This includes promoting socio-economic integration of the poor, especially rural women, through providing micro-credit and creating sustainable livelihood opportunities (Return to top.)
C.
Political and Administrative Structure
The Republic of Yemen was founded on May 22, 1990 as a result of the reunification of the Yemen Arab Republic (North Yemen) and the People's Democratic Republic of Yemen (South Yemen). The new states adopted a democratic system and free market principles.
The Republic of Yemen has a 301 member Parliament elected by direct votes. Administratively, the country is divided into 17 governorates plus Sana'a city. The Government continues to be highly centralized, however it started to delegate authority to its officials at the governorate level. Additionally, Government is also undertaking a major program to restructure the present governorates and establish a decentralized system.
During the last years the Government made a strong effort to build the structure of the new country; unifying the two almost opposite administrative and political bodies, establishing new laws and regulations, and streamlining the activities of the state. However, Government efforts to build the new state were hard hit and hindered by political and economic factors.
With the Gulf War, repatriation of almost one million Yemeni migrants from Saudi Arabia and the Gulf States exerted more pressure on government services and infrastructure. Concurrently, Government and society lost the income formerly generated by these migrants. At the same time, external aid and loans became limited. The ability of the government and the private sector to create new jobs was limited. The political struggle between the different parties increased and resulted in the 1994 civil war, which caused extensive damage to production facilities and infrastructure. Economic development in Yemen was severely affected by this war.
As a result of the civil war and the repatriation of migrants the economic situation deteriorated. The deterioration was evident in a higher rate of unemployment, a higher level and depth of poverty, a higher inflation rate and a large budget deficit.
Government reviewed its policies and economic strategies in an effort to improve the economic situation. In 1995, it started implementing a reform program based on increasing private sector participation in the economy. More emphasis was given to small and micro-businesses. The Ministry of Planning and Development released the Economic Declaration of the Government on July 13, 1996. The Declaration was linked to the Five-Year Plan and stated that one of the bases for the new strategy in industry was "developing small industries, handicrafts and cooperatives and providing managerial and technical training to them."
More precisely, the Government gave priority to the development of the informal sector, which is carried out by individuals on a micro-level. The Economic Declaration called for the promotion of this sector through:
- Promoting subcontracting businesses in the informal sector
- Giving more attention to the needs of handicrafts
- Promoting financing and lending policies for micro-businesses.
Government interest in small and micro-economic activities is also manifested in several other areas. The Ministry of Industry in early 1997 established a Department for Small and Micro- Enterprises. The Social Fund for Development, which started operations early this year, is directing a good portion of its activities to small and micro-businesses. Government is studying a proposal for the establishment of the Small Enterprises Development Fund. According to the proposal, the Fund would provide financing or help in providing financing to small enterprises, provide a guarantee scheme, provide technical advisory services and explore and promote investment opportunities. Essentially, the Fund would be created by transforming the Small Enterprise Development Unit (SEDU) into an autonomous body, independent of both the Industrial Bank of Yemen and the Ministry of Industry.
The Central Bank of Yemen supervises banking activities. No entity is allowed to practice banking activities without a license from the Central Bank. However, if an organization is providing loans without performing the rest of the banking activities such as opening current accounts or saving accounts, then the license of the Central Bank is not needed. Such an organization would need to be licensed by the Ministry of Trade. (Return to top.)
The population of Yemen was 15.9 million in 1996 and growing at the high rate of 3.5 % annually. The majority of the people live in rural areas. According to the 1994 census only 3.9 million of the total population live in urban areas (24.6 %) while the remaining (75.4 %) live in rural areas.
The scarcity of economic resources and job opportunities in the rural areas drives more people each year to the main cities. Males go to the cities and females stay in the rural areas.
The total population density in the country is 28 persons/km. Because of geographical, economic and climatic reasons, the density varies from one governorate to the other. The highest density is in Sana'a city with 4,385 p/km( followed by Ibb governorate where the density falls to 299 p/km( and Taiz governorate with 196 p/km(. Density becomes less as we go eastward and southward where it becomes 6 p/km( in Hadramout and Marib, 5 p/km( in Shabwah, 4 p/km( in Al-Jawf and only 2 p/km( in Al-Mahrah. See the map in Annex IV for location of the governorates.
The total school enrollment (age 6 to 15) rate in Yemen is 55 %. The rate varies in regard to gender and geography. Males enrollment rate is 70.8 % and this rate drops to 37.5 % for females. Urban areas have a higher rate of enrollment at 79.5 % compared with the rural rate of 48.5 %.
Illiteracy is high especially among women. The total illiteracy rate is 55.84 % with males at 36.53 % and females at 76.2 %.
Health care and services have improved somewhat. However, much still needs to be done. The infant mortality rate is 80/1000. Infectious disease cases totaled 862,354 in 1996. The number of population for each doctor is 4,175 and the number of population for each hospital bed is 1,404. Only 55 % of the population has access to health services.
With the high population growth and the scarcity of economic resources, unemployment is becoming a major problem. The unemployment rate was estimated at 25-30 % in 1996. The Economic Declaration described unemployment as an important socio-economic problem that should be addressed.
The role of self-employment and the informal sector is noticeable. The First Five-Year Plan (1996-2000) estimated the GDP generated by the informal sector in 1994 to be in the neighborhood of 20-30 % of the GDP generated by the formal sector.
The first industrial survey, 1997, shows that the total of industrial establishments is 33,284. Among that number, 31,730 (95.3 %) establishments were small industries of 1-4 workers. These enterprises are providing jobs for 53,388 workers or 48.6 % of the total jobs provided by the industrial sector, which is 109,939. These figures indicate the importance of small and micro-enterprises in the economy of Yemen.
The 1994 census indicates that among the economically active population 35.8 % were self- employed and 22.6 % were working with family and 40.0 % were employees. Among males 41.3 % were self- employed. Only 14.8 % of economically active women were self-employed, the balance being unpaid family workers, 72.2 % and employees, 12.4 %. There is limited knowledge of poverty. Reliable statistical data concerning the extent, geographical distribution and trends of poverty are not available. However, it is clear that the rural areas and women suffer disproportionately.
In 1996 the total GDP was 150,797 million Yemeni Rials. The GDP growth rate was 4.41 %. The contribution of the main sectors was (YR millions):
- Agriculture, forestry and fishing – YR 44,681
- Mining and quarrying – YR 28,649
- Manufacturing – YR 12,014
- Wholesale and retail trade – YR 21,074
The highest growth rate was in the mining and quarrying (13.4 %) due to new oil field operations. Manufacturing sector was second with a growth rate of (10.5 %), then wholesale (4.0 %) and agriculture (1.7 %). However, the agriculture, forestry and fishing sector still makes the highest contribution to the total GDP with 29.6 %. Mining and quarrying came second with 19 %, then wholesale and retail trade 14 % and manufacturing 8 %.
The years between 1990 and 1995 were characterized by sharp a decline in the economy of Yemen. GDP per capita dropped from $ 686 in 1990 to the low level of $ 281 in 1996. The inflation rate reached 100 % in 1994 when the budget deficit was 16.7 % of GDP. However, since the Government started implementing the economic reform program in 1995 the economic situation has been improving. In 1996, the inflation rate and budget deficit were 28 % and 0.6 % respectively. (Return to top.)
The Yemeni society is basically a tribal society. People still hold strongly to their tribal ties and behave according to the tribal customs and regulations. In urban areas and in coastal areas this general rule may be less true, but nevertheless, valid.
The Arabic language, conservative Islam and Arab heritage are common bonds that unite Yemeni society.
Women are less active in the Yemeni society than men. Although in theory women can work and own assets and economical resources, men are directing the use of such assets. Within the poor regions and population women are more economically active.
The information collected from some pilot projects indicate that though women shy from participating in economical activities, they will engage in such activities once they recognize the benefits. This is more true among the poor and disadvantaged groups.
Yemeni society has a long tradition of cooperative work. The government used this social trend to mobilize more human and financial resources for the development of the country. Organized cooperatives and unions were established in mid 1970's and they have a noticeable participation in the establishment of development projects. This tradition suggests that the methodology of group lending could be readily adopted.
The number of NGOs increased dramatically during the last two years. The government is getting less involved in the management of social activities, and thus the role of NGOs is becoming more important. However, most of the NGOs are still incapable of running their businesses in an effective and an efficient way. They require support especially in management and know-how.
Being a conservative Muslim society, the concept of interest on loans is not readily accepted in Yemen. Banks do however provide interest on deposits and collect interest on loans. However the majority of people opposes this practice. It is important to mention here that service charges, including a profit for the bank are not opposed. The trend among the poor people is to accept extra charges on loans especially when they realize the benefit of getting the loan. (Return to top.)
The history of banking system in Yemen is relatively short. The first bank was established in the northern governorates in early 1960's while southern governorates enjoyed a longer history of banking activities.
There are nine commercial banks operating in Yemen. The Yemen Bank for Reconstruction and Development, partially owned by the government is the largest bank in terms of the number of branches and operations. National Bank of Yemen is a public sector bank with branches covering most of the governorates. Seven other private banks are active with branches in the main cities only. Commercial bank financing of small and micro-enterprises is very limited. The high level of collateral and difficult procedures required by these banks, make them inaccessible to micro-borrowers. The unhealthy environment existing in the financial markets in Yemen makes it difficult for the commercial banks to be flexible. The newly established Islamic banks are penetrating fast in the financial market. During the last two years three Islamic banks started their operations. Started their business in Sana'a, some of them already have expanded to other cities. Some of these banks may provide micro-loans with more flexibility than commercial banks.
There are three specialized development banks in Yemen; namely the Industrial Bank of Yemen, the Housing Bank and the Cooperatives and Agricultural Credit Bank (CACB). These banks offer loans of different sizes to their clients. However, due to lack of financing and for some managerial problems, these banks are of limited effect. The government is in the process of restructuring these banks since it is commonly believed that charging an appropriate provision for loan losses would wipe out each bank's capital. Among these banks the CACB is providing small loans of less than 100,000 Rials and has 36 branches many of them in rural areas, which makes the bank a potential candidate for providing micro loans.
The Ministry of Industry operates the Small Enterprise Development Unit, a pilot project that provides loans to small and micro-enterprises. A large number of SEDU's loans are micro-loans. SEDU is the only financial institution that provides micro-loans at the present time, although SEDU officials indicate that micro-lending is not profitable for SEDU. The proposed Small Enterprise Development Fund may be established upon SEDU's successful experience. If the Fund starts its operations soon and branches throughout Yemen, it could be another micro-loan provider.
Five Year Development Plan 1996-2001
During 1996 the Government established the current Development Plan. There are twelve major socio-economic development objectives as follows:
- Increase economic
growth and accelerate social development at the highest possible rate
in order to ensure substantial improvement in the standard of living
as quickly as possible;
- Create new job
opportunities and reduce dependence on foreign workers;
- Increase exports,
developing hard currency resources from sources other than oil, gas,
loans and grants;
- Expand and diversify
national income sources and develop local savings to participate in
financing investment and government expenditures;
- Restructure the
economy to change the relative contribution of each sector to GNP;
- Reduce dependency
on oil income for Government expenditure;
- Expand and improve
education and public health services to meet the increasing needs
of the nation;
- Establish new
projects in infrastructure (water, roads, ports and airports) and
complete those already started;
- Distribute economic
and social development returns among all governorates ; reduce wide
disparities among various social groups and areas; and ensure equal
opportunities for all citizens;
- Improve the environment
and protect it from deterioration;
- Conserve water
resources and improve the management of water resources;
- Create a conducive environment to enhance productivity of labor in terms of education and training and promote entrepreneurial spirit and excellence among Yemenis.
1. Strategy
The Government of Yemen through the Ministry of Planning and Development (MOPD) has prepared a draft Country Strategy Note (CSN), which has not been circulated and approved. The UNDP country Team collaborated with MOPD in launching preparation of the CSN. The CSN outlines the contribution of the UN agencies in response to the requirements identified by Government in its Five-Year Plan. Although exact details are not available, the CSN focuses on seven themes:
- Human resource development (education, health and population)
- Poverty alleviation and sustainable livelihood;
- Protection of the environment;
- Advancement and empowerment of women;
- Agriculture, food security and water;
- Democracy and Decentralization;
- Strategic planning
2. Programme Overview
The UNDP Country Office signed a major Programme Support Document, Poverty Alleviation and Employment Generation, with the Government of Yemen on June 12, 1997. Known by the Programme Support Number YEM/97/300/B/01/99, the document describes the Government of Yemen's five year (1997-2001) National Programme Framework for Poverty Alleviation based on the First Five Year Development Plan and assistance planned by the major donors to Yemen. The Framework is built around initiatives in four areas: Social Development (including health, education and welfare), Agricultural Development, Social Infrastructure Development, and Industrial Development. Funding for the programme is US$ 23.3 million including US$ 15.5 million of TRAC 1 and 2 resources. There is an additional US$ 17.1 million in parallel financing from UNCDF and WFP.
UNDP Programme Support will be directed to creating an enabling environment for poverty alleviation through assisting Government in formulating and operationalizing appropriate policies and initiating concrete and alternative pro-poor activities. The main elements of UNDP support are:
- Assist Government
in formulating a national policy framework on poverty alleviation
and in establishing a national entity to manage it.
- Enhance Government
efforts to streamline its institutional network and reinforce its
capacity in the areas of labour policy formulation and data management.
- Promote socio-economic
integration of the poor, especially rural women, through providing
micro-credit and creating sustainable livelihood opportunities.
- Support Government in redirecting development activities to the regions by assisting regional authorities in building their development planning and implementation capacity.
H.
Government and Donor Interventions in the Micro and Small Enterprise
Sector
1. Social Fund for Development
The Social Fund
for Development (SFD) was officially established February 7, 1997 by
Law No. 10 to alleviate difficulties caused by the economic adjustment
program implemented by the Government of Yemen. SFD reports directly
to the Prime Minister's office and is governed by a Board of Directors
chaired by Prime Minister. Other Board members include representatives
of the private sector, representatives of NGOs and Government ministers.
The Managing Director who was appointed one year ago spent considerable
time in the preparatory phase of establishing SFD. Funding, is primarily
from the World Bank and the EU. Some support is also coming from the
Dutch Government. Overall, approximately US$ 80 million will be available
over five years under the three main programs of SFD. The following
table illustrates the allocation of funds.
|
Social
Fund for Development Budget by Program over 5 Years
|
|
| Program |
US$
millions
|
| Community Development (Primary Health Care, Basic Education, Water, Environment) |
38
|
| Micro and Small Enterprise Development |
27
|
| Capacity Building of NGOs and SFD |
15
|
| Total: |
80
|
| Source: Social Fund | |
No allocation has been established for microenterprise credit, although some documents refer to a figure of 10% of funds. SFD is looking to opportunities to invest in viable microcredit schemes due to the lack of significant experience or institutional capacity in microfinance.
Two pilot programmes, one in Dhamar and one in Hodeidah Governorates are being established with the assistance of EU and Dutch Government financing. No activity has taken place on the Dhamar pilot. The Hodeidah programme will target the urban poor through a local implementing partner, the Hodeidah Chapter of the Yemeni Women's Union. Work is currently underway in developing procedures and manuals. Important findings and recommendations from the programme to date are: 1) Loans should be made using group guarantees; 2) Loans should be offered using Islamic banking practices; 3) Average loan size needed was $100-$200.
In addition to the two pilot programmes, SFD is supporting standardized income generating activities (IGA's). Two models of IGA's to be used are 1) an intermediary, such as an agricultural cooperative sponsors a credit scheme (cattle fattening) where credit in kind is given to the clients, 2) an intermediary sponsors and manages an activity and hires the beneficiaries. (the word is intentionally used instead of client, as there is an employer-employee relationship in this case) Both types of activities can have an impact on the poor, but are outside the purview of conventional microfinance. The Wadi Seham agricultural cooperative is implementing an IGA for cattle raising in Marawa'a District, Hodeidah Governorate. Total funding is $189,000, with $146,000 going toward lending. Maximum loan size is $400.
As of October 25, the Social Fund had 27 projects under implementation with a value of $2,545,000. Four of the projects,(all located in Hodeidah Governorate) with a total value of $939,000 deal with micro-credit. The Wadi Seham Project is the only one that has disbursed credit. The other 23 projects relate to community development. A further 16 projects, primarily community development are under study at the Social Fund. One of the potential projects will deal with small enterprise financing through banks in Sana'a, Aden, Taiz and Mukallah. Finally, 75 additional projects have been identified, most dealing with infrastructure, but seven deal with microcredit, primarily cattle fattening. Four projects, all health with a total value of $50,000, are under contracting. Values of projects under study and projects identified were not specified.
Initially, because of staffing patterns, Social Fund looks to rely more on microfinance projects implemented through others rather than designing its own microfinance activities. There exists a shortage of NGOs with sufficient capacity to implement microfinance programs. Financial institutions are not at present interested in microfinance.
2. UNCDF
UNCDF supported a pilot project, the Small Enterprise Development Unit (SEDU) within the Industrial Bank of the Ministry of Industry. Total project cost was US$ 5.4 million including Government of Netherlands co-financing. The project completion date is the end of 1997. Up through September 1996, SEDU had disbursed over $3 million in 431 loans. Financing is aimed primarily at small enterprises, although approximately 32% of the loans by number were less than $500. This loan segment represented only 2% of all loan funds disbursed. Average loan size was $7,100. SEDU is only located in Sana'a although it has disbursed loans throughout Yemen. Due to the lack of branches, SEDU is not equipped to lend to microenterprises.
In addition to the outreach limitation for microenterprises, SEDU management does not view microenterprise finance as a profitable activity. It is currently charging 12% interest for microloans (less than YR 200,000) 18% for small loans, and 16% for fixed asset financing. As part of a Government entity, it is under pressure to keep microcredit rates low. Although SEDU will likely not phase out lending to microenterprises, it cannot be expected to expand increase the share of lending to this category. SEDU is striving for sustainability and recognizes that with its present structure it cannot achieve sustainability as a microlender.
UNCDF has approximately $500,000 of undisbursed budget for loan funds that will likely not be disbursed. Conversion of SEDU into the Small Enterprise Development Fund is under consideration by Government. This conversion has been discussed for quite some time and timing and eventual outcome is highly uncertain. The Small Enterprise Development Fund would be an autonomous body, but it is expected the posture to steer away from microloans would carry through from SEDU. Continued support for technical assistance and training is anticipated from the Netherlands Government.
3. GTZ
GTZ has in the past supported the General Authority for Vocational and Technical Training (GAVTT) which has various centers throughout Yemen. Although these Government-run centers have graduated trainees with new skills, the skills have not always been marketable. GTZ will initiate the Promotion of Small Scale Enterprises Project during January of 1998. The projects major objective, during its eight-year life, is to improve the performance of the small-scale enterprise sector. In order to achieve the objective, the project will help government, NGOs and concerned entrepreneurs to attain several sub-objectives:
- Establish and
implement appropriate strategies and policies as well as legal and
institutional framework conditions for the development of the SSE
sector
- Strengthen the
capabilities of governmental and non-governmental institutions/organizations
which are established or supposed to provide adequate services to
SSEs
- Establishing
and / or strengthening self-help organizations of SSEs
- Enhancing the
technical and managerial capabilities of SSEs
- Facilitating
access of the SSEs and potential business creators to consultancy
services, training, information and credit
- Strengthen selected NGOs and enhance their capabilities to provide better services to microenterprises and to promote income-generating activities for women.
During the first phase of three years, which will be a pilot phase, work will be in Taiz (main project office) and Aden. Expansion to other regions will be considered well before the second phase. The primary target groups of the project are: 1) small-scale enterprises (employing up to 10 persons) and working in the field of industrial production and industry related repair and maintenance services and 2) women. Working with women is envisioned through NGOs. NGOs in the project area active in the field of skills training, business counseling and business creation will be strengthened to serve women in a more efficient and market oriented manner.
GTZ's governmental partner in the project shall be the Ministry of Industry, which shall supervise project implementation. A Project Management Unit composed of Yemeni, German and regional professionals will undertake planning and management. A Project Advisory Committee composed of high ranking representatives of concerned private and public sector institutions, NGOs and target groups will serve under the chairmanship of the Minister of Industry.
3. Adventist Development and Relief Agency (ADRA)
ADRA is a worldwide network of country specific synergistic assistance programs primarily in health, education and water. The programs work at the grassroots level and ADRA has been in Yemen three years. ADRA has considerable experience in Sudan, a nearby Arab and Islamic country. In Hays, Hodeidah governorate, ADRA is implementing the last remaining USAID funded project in Yemen, the Child Survival Project. The Project has three components 1) literacy, 2) health, 3) savings and credit. The savings and credit component has been much in demand by local women. Due to the strong Islamic tradition, men and women are served separately by the project. Men have not been involved in the credit component to date. Approximately 550 women in 28 groups have been involved with the project, which is 1 1/2 years old. Through October 1997, 159 women from 12 groups have received loans. The cumulative value of the loans is approximately $7,200 (YR 6,000 each).
The ADRA methodology uses group lending for individual projects. Most of the projects are livestock and some are for trading. A woman project director handles both the literacy and microfinance components. She has trained women facilitators who form and train the groups. Groups undergo a 6-8 month training period during which the literacy training takes place. Each group member saves a set amount per week and deposits it with the group treasurer. Only one half of the group members are eligible to take a loan, which is for approximately 9 months. The longer than normal repayment period for group loans reflects the nature of the economic activity. There is a 16% flat fee, with interest deducted in advance due to the lump sum payment of livestock activity. Progressively larger loans are granted based on successful repayment.
ADRA's activities are one of the pioneering efforts in Yemen microfinance and are quite important in what they have demonstrated in the short project period. First, women can become involved in economic activities, in the conservative Islamic Yemeni culture. The project was careful to secure concurrence from key male community members and allowed the community to choose the women who would undergo leadership training for project activities. The women recognize the service charge they are paying for the use of the money. Finally, the women were able to save each week, contrary to what people thought about the ability of the poor to save.
The woman project director in charge of the credit and savings component is Sudanese and fluent in Arabic. ADRA would be willing to subcontract to provide her expertise. Additionally, ADRA might be able to provide on site training with their present groups. The ITSP should explore cooperation with ADRA. The Social Fund has already contracted ADRA's services under a project.
1. Estimate of Potential National Demand
One method of deriving potential national demand for microfinance is to use a loan size expected according to microfinance best practice to reach the poor. The benchmark of accepted loan size is less than or equal to GDP per capita, which for Yemen was $281 in 1996. Based on the percentage of the population below the poverty line (21%), there are approximately 3.2 million Yemenis living in poverty. This represents approximately 454,000 households based on the 1994 Census. Assuming one in five households would utilize a loan equal to GDP, demand would be $25.5 million. More conservatively, a loan of one half of GDP per capita would result in demand of approximately $12.7 million.
2. Estimate of Demand in Select Areas
The three Major urban centers of Sana'a, Aden and Taiz have approximately 252,000 households. Based on the average of 21% of the population in poverty, approximately 53,000 households live in poverty. If one in five were to utilize a credit of $281, the demand would be $3.0 million. More conservatively, $1.5 million.
827,120 384,160 272,720 1,484,000
|
Potential
Credit Demand in Three Urban Areas of Yemen
|
||||
| Urban Area |
Sana'a
|
Aden
|
Taiz
|
Total
|
| No. Households |
140,661
|
65,328
|
46,375
|
252,364
|
| No. Households Living in Poverty (21%) |
29,540
|
13,720
|
9,740
|
53,000
|
| 1/5 of Households in Poverty |
5,908
|
2,744
|
1,948
|
10,600
|
| Credit Demand at GDP per Capita ($281) |
$1,660,148
|
$771,064
|
$547,388
|
$2,978,600
|
| Credit Demand at 1/2 of GDP Per Capita ($140) |
$827,120
|
$384,160
|
$272,720
|
$1,484,000
|
|
Source: 1994
Census, World Bank Poverty Assessment, Own calculations
|
||||
J.
Potential Micro Finance Organizations and Clients
Cooperatives
The most widely known cooperatives are the agricultural cooperatives, which are discussed in this section. There are 267 registered agricultural cooperatives but only 153 are active. Of the active cooperatives, approximately 100 have full time staff year round and would represent potential partners. Since the cooperatives concentrate in rural areas, they would be especially useful to consider for those areas. Officials in the Agricultural Cooperative Union, the national body to which most agricultural cooperatives belong, report that the cooperative associations have 85 thousand members, with about 20% being women. The largest of the agricultural cooperatives have over 11,000 members. An average cooperative has an annual business volume of YR 20 million, with some in the YR 70-100 million range. All cooperatives are subject to external audit annually. A potential drawback to partnering with cooperatives is their linkage with the government. Annex V provides greater detail about cooperatives, including financial statements of the Agricultural Cooperative Union and a representative cooperative.
ii. Charitable Society for Social Welfare (Islah)
This organization was established in 1990 and has 19 centers located throughout Yemen and can be considered for partnership in both rural and urban areas. There are five full time employees in the main Sana'a office and 30 throughout the centers. The Society is regarded as the most important of the charitable societies in Yemen. Its past activities have been directed through six main committees:
- Neighborhood
Activities, which arranges for donation boxes to be set up and the
proceeds disbursed to needy persons in the neighborhood;
- Women's Committee,
which runs adult literacy and needlework courses, girl's clubs and
kindergartens;
- Orphanage Care
and Sponsorship Committee, which arranges monthly subsistence allowances
for orphans and supports orphanages;
- Basic Health
Services Committee, which runs primary health care and food distribution
centres in rural areas as well as mobile health units;
- Special Projects
Committee, which supports microenterprises and survival projects;
- Emergency Relief Committee for returnees and disaster victims, which assisted Gulf crisis returnees and 199 4 civil war victims.
The Society now wants to place more emphasis on sustainable activities rather then continuing to operate on only a grant basis. They are now engaged in training activities and plan to expand this further with a training center for men and women. Training is planned in eleven skill areas which include carpet making, sewing, handicrafts, leather, semi-precious stones, wood engraving, typing, and secretarial work. The society is looking to provide some of the people who have gone through their training program with small loans. Some of the loan purposes might be to purchase small carts, handicraft materials and inventory.
The annual budget for the main society is about 30 million YR per year. The budget comes primarily from donations, however it does charge for some of its services.
a) Location Specific Partners
Local Welfare Associations are the primary source of non-government sponsored development activity in rural areas. Local development associations had played this role before they became government-controlled entities. Local Welfare Associations objectives are to develop specific geographic areas and are often able to solicit sizeable funds, especially from Yemenis working abroad. All organizations mentioned in this section except the Aden Branch of the Yemeni Women's Union are examples of Local Welfare Associations. Because of their ability to leverage funds, and because they are often associated with influential and wealthy businessmen, Local Welfare Associations are attractive potential partners. Working with partners who have a business-oriented approach should make it easier to achieve sustainability in a microfinance program.
i. Aden Charitable and Social Society
The Aden Charitable and Social Society was established in 1992 and had an operating budget of approximately 10 million YR in 1996. The Society President is Ghazi Abdulaziz Alwan, a prominent businessman and there are over 700 members, of whom a third are women. The Society has six full time staff members, including a manager, social manager, and secretary.
The Society's activities have been primarily targeted toward 2,000 poor families in Aden. In 1997, 10,000 uniforms were provided to poor school children. Income generating projects to support poor families are a being considered, although most are of a collective nature, a legacy of the former socialist system. Staff members agreed that there were indeed economic opportunities for the poor in Aden to pursue with loans in the $50 to $500 range.
ii. Hadarami Charitable Association (in Aden)
The Hadarami Charity Association was originally established in 1947 and targets people from Hadramaut Governorate. Operations of the Association were suspended from 1972 through 1990 by the former government in the South. After the unification of Yemen in 1990, the Association again was able to resume operations, which it did in 1992. The 1996 budget was about YR 3 million and was spent primarily on 2,000 poor families during the Holy Month of Ramadan. Other activities have centered on providing surgical care in special mobile "camps." Funding comes from membership subscriptions and private donations.
The General Secretary, Awadh Al-Wazzan is an Aden businessman and he is supported by active and interested membership. The Association owns a four story building in Aden which houses its offices and a soon to be opened computer training center. The Association requires fees for its training. Where a person will not be able to afford the tuition, scholarship assistance will be solicited for the person, however, everyone will be required to pay part of the cost themselves. The Association is considering how to develop a finance program to assist the poor.
iii. Aden Branch, Yemen Women's Union
The Aden Branch predates the 1990 unification of Yemen. In 1968, two women's societies in Aden, which dated to 1946 and 1956, were merged. With unification, the societies in the North and South were joined. The Aden Branch has about 1,500 members but has fallen on hard times due to much diminished Government financial support, which is now YR 180,000 per year. The only other source of income is YR 480,000 per year received in rental from property owned by the Branch. The annual budget is thus about YR 660,000.
Common criticisms of Women's Union Branches are a tendency toward an unwritten political agenda. This Branch is especially interested in starting income generating activities for increasing Branch income.
iv. Hail Saeed Anam Charity Society (in Taiz)
The Hail Saeed Charity Society was formally registered as an NGO in 1995, to carry on the works of the late Hail Saeed, a prominent Taiz businessman. The Hail Saeed Group of Companies composes the largest private business group in Yemen. Members of the Hail Saeed family, all business professionals own the various companies and serve in on the Board of the Society. The Society is endowed with 10% of the profit from each of the Hail Saeed companies, so income is not a problem.
The projects undertaken by the late Hail Saeed and the Society have been principally of a construction nature, including mosques, health centers, and water projects. Twelve engineers are employed to assess potential projects and oversee implementation. Other activities include financial assistance to the poor and handicapped, clothing distributions and scholarships. The society also provides an eight-month training course for women, which trains 60 persons per cycle. The Society facilitates orders for clothing from Hail Saeed Companies to the graduates.
Due to the business background of Board members, the organization is quite efficient. Board members expressed interest in microfinance technology as a tool in poverty alleviation.
v. Welfare Association for Preventing Begging (in Taiz)
This Association, newly formed in 1997 is targeting 2,000 persons in Taiz, 700 of whom are beggars. The Association has conducted extensive research into the targeted persons and is formulating a program of how to proceed. The principal objective of the organization is to help the poor become able to generate enough income for a decent living rather than to provide handouts. The Hail Saeed Group, with the Finance Manager being Abdulla Abdo Saeed of Hail Saeed Anam & Co LTD, backs the Association. The Chairman is the Director of Public Health in Taiz. Both the Chairman and Finance Manager are interested in microfinance as a tool to assist their target group. With the backing of a Hail Saeed Company, this organization will likely be able to mobilize financial and human resources easily.
vi. Sana'a Charitable Society
The Sana'a Charitable Society was established in 1992 and works in Sana'a City and the surrounding area. There are 30 full time employees and the annual budget is about YR 7 million. Funding comes from donations. Past activities have centered assisting the poor with food, clothes, sometimes cash and occasionally medical treatment outside Yemen. The Society has three training centers. Courses include elementary health care and sewing.
The Society has guaranteed loans for about 85 women and experienced only one default. They are interested in finance for income generating projects run by their target group and have contacted the Small Enterprise Development Unit to explore possible cooperation. The general feeling was that projects would require YR 100,000-150,000. The Chairmen of the Society is also the head of the Sana'a Local Council. (Return to top.)
1. Sana'a
Sana'a city has approximately 30,000 households living in poverty and hosts the largest pool of poor households in a compact geographical area. The number of poor in Sana'a is expected to increase as individuals from outlying areas migrate in search of economic opportunities.
2. Aden
Aden has approximately 14,000 households living in poverty. Aden is an especially appropriate choice considering that it has not received a great deal of development attention and continues to suffer from neglect of the pre-1990 socialist regime. Development of a free zone is expected to increase economic activity in the Aden area. The growth in economic activity should create expanded opportunities for employment in microenterprises.
3. Taiz
Taiz City has approximately 10,000 households living in poverty. Furthermore, Taiz Governorate is one of the largest in Yemen, with over 2 million people living in over 321,000 households. Reflecting the overall national averages, about 83% of the households are in rural areas. Since Taiz Governorate is not large geographically, it has the third largest population density in Yemen.
4. Elsewhere
Rural areas account for approximately 368,000 households living in poverty. Since this represents the vast majority of the poor in Yemen, rural areas must not be ignored. Careful consideration is required to select the areas with greater concentrations of the poor. The areas need to be accessible, and sufficient numbers need to be present in order to be able to scale up the service to a viable number.
Four of the five action areas in the Regional Development Component of the Poverty Alleviation Programme are in rural areas. Action areas under the Regional Development Component are:
- Bani Sad in Al-Mahweet
Governorate;
- Ghayl Ben Yamayin
in Hadramawt Governorate
- As-Sawadiyah
in Al-Bayda Governorate;
- Al-Mukha in Taiz
Governorate;
- Parts of Sirah and Ash-Sha'ab Districts in Aden Governorate
L.
Risks and Special Considerations
Lack of significant experience in microfinance
Ordinary citizens, much less the poor are not accustomed to borrowing, and the little borrowing that takes place between family and friends is done without interest. This is actually an opportunity for Yemen as there has not been a proliferation of poorly designed programs to create problems for well-designed programs.
Diversity in Yemen
Due to the tremendous geographic and cultural diversity, one model will not necessarily work in all areas. The area or the former South Yemen has special circumstances related to the earlier regime. Individual initiative was stifled, and people tend to think of projects in terms of collective efforts, including collective ownership. This may present an opportunity for more ready adoption of solidarity lending, however, accountability will need to be stressed as it was lacking in the old system.
Social Venture Capital
Given the infancy of microfinance in Yemen, in making investments in organizations with little or no experience in microfinance, funders must recognize and be willing to take risks.
Yemen is a very conservative Islamic country. Women in general do not take an active part in activities outside the home. Additionally, their participation in activities requires concurrence of male members of the household. This somewhat restricts the economic activities in which women can participate. Additionally, the Project needs to be keenly aware of the need to obtain concurrence from community leaders to ensure cooperation. Once a commitment was secured from community leaders, women were able to participate in a group-lending program sponsored by ADRA, an International NGO. Women and men will need separate groups. Cultural diversity cannot be overlooked, because in some areas of Yemen, women make the business decisions. Examples are in Jebal Saber near Taiz, and Al Mahara Governorate, an almost matriarchal society.
Capacity of Partner Organizations
Capacity of partner organizations in the area of microfinance is non-existent. Typically NGOs in Yemen have difficulty in running their own affairs. Often, one or two charismatic or strong-willed individuals dominate them. This situation can be addressed by careful selection of partner organizations and training support not only in microfinance, but also in management and governance. An advantage of this situation is that partner organizations do not have to unlearn unsatisfactory microfinance practices.
Infrastructure and services in Rural areas
Rural areas, the location of 81% of the poor are difficult to access due to rugged geography in the mountainous areas, poor roads and communications, and inadequate public services including health care, water and waste treatment. These conditions make it costly and time consuming to work in rural areas. In many rural areas, it may not be possible to implement a sustainable microfinance program. Building upon success in urban areas can mitigate this factor when spreading microfinance programs to rural areas. The initial round of participating organizations should be primarily from urban areas and consideration should be given to organizations that have a presence in both urban and rural areas.
