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IFC: micro small and medium enterprises is a main component in stimulating Yemen's Economy.

Increasing access to financial services by promoting home financing and secured lending in Yemen was one of the main topics addressed on Wednesday's Home Finance and Secured Lending conference held by the IFC's Advisory Service.<p>International Finance corporation IFC argues that providing financial services to individuals, as well as small and medium businesses is a main component in stimulating Yemen's Economy.

Both government and private sector stakeholders attended the five hour and half conference which presented a slideshow highlighting IFC's financial products.

These products can be used by banks and specialized financial institutions and can help to stimulate the economy in Yemen.

The conference consisted of talks on many topics, all of which addressed better ways to obtain financial services to give people the opportunity to start and expand their businesses in both the private and public sectors.

According to IFC, the Yemeni government needs to create more job opportunities, which is why IFC is working very closely with the government in an attempt to tackle the obstacles confronting Yemen's economy.

One main reason for the difficulty in accessing financial services in Yemen is that many firms and entrepreneurs in Yemen do not have access to credit, as they lack sufficient collateral. As argued by the Advisory Services, banks in Yemen only lend at high rates because of the high risk.

High risk is due to no assurance of priority against other interests, as well as unreliable and slow enforcement against collateral.

In the World Bank 'Doing Business' rankings for credit, Yemen ranked 150 out of 183 countries in terms of ease of credit assistance from banks.

In another study by IFC, Yemen ranked 2 out of 10 points on the Strength of Legal Rights Index, which measures effectiveness of regulations on nonpossessory security interests in movable property.

Less than four percent of Yemenis have a bank account, another reason why it's hard to get financial access, according to a graph presented by IFC. In addition, according to IFC, banks only loan to those they know and trust.

Add that to the fact that the loan-to-deposit ratio in Yemen is very low, at only 33%, and it is nearly impossible for Yemenis to access better financial institutions.

Along with working with the government and non government institutions, IFC offers five programs in their financial markets strategy that will provide technical assistance and support to banks, microfinance institutions and non-bank financial institutions.

This assistance includes credit information services, home loans and finance, leasing, microfinance, SME banking and secured lending, all provided by IFC.

In coordination with IFC Advisory Services a new leasing law was passed last year by the government in Yemen, giving small businesses a boost in accessing finance.

The World Bank business report ranked Yemen number 50 in ease of starting a business; two years ago Yemen was ranked 176.

James Gohary, IFC Senior Operations Manager, said, "IFC is actively working in Yemen to increase access to finance for traditionally underserved markets to help create jobs and opportunities. Enabling individuals and smaller businesses to access finance is vital to creating a sustainable private sector in Yemen."

By adopting a legal framework that: comprehensively governs use of movables such as collaterals, and a framework that covers all types of legal interests that secures the main obligation, and also covers all types of movable property- tangible/intangible, present, and future; access to finance in Yemen will increase.

As listed in the slideshow, movables such as: equipment, inventory and raw goods, consumer goods intangibles and documents such as warehouse receipts, instruments, contract right and intellectual property, cash and deposit accounts are all movables that can assist when trying to get access to finance.

As stated by the Advisory, the lending in Arab cultures relies on knowing and trusting the borrower, which is why secured lending is the best option, because as the lender grows, knowledge and trust is less feasible.

Another obstacle which prevents access to finance is the Islamic banking system.

This is because secured lending is not compliant with Sharia law, as taking interest on loans is forbidden. However, some Islamic bankers have examined it and claimed to have found it to be "consistent" with Sharia.

At the conference, IFC Advisory Services presented a reform policy which needs to be implemented in order for people to have a more suitable access to finance.

Such reform policy includes: effective legislative reform to enhance rights of creditors in movable assets, creation of functioning movable asset registries for filing notices, and awareness raising and capacity building activities for stakeholders about the benefits of well-functioning secured financing systems.

According to IFC Advisory Services Reforming the policy will increase access to capital at lower rates, increase in new business as well as start-ups and growth of existing businesses, increase of employment, increase of tax base and lower risk and higher profits for lenders.

Yemen will witness economic growth as soon as enforcement of laws takes place by the government.

According to an IFC report, IFC has invested in Saba Islamic Bank with $850,000 in 2009 and $5.8 million in 2008 through their global trade Finance Program, committed $10 million for Magrabi Hospitals and centers' expansion plans in Yemen, and committed $8 million to Al-Mawarid Company for educational and health services.

IFC says that Yemen is one of the poorest countries in the world seeking to develop new ways of income and whose private sector is still at a very early stage of developing.

Yemen's unemployment rate is high, at 40 percent, with half the population living under less then two dollars a day. IFC is currently working with the government to address these challenges facing the country in order to bring about a change.

Sarah White, DFID Country Manager said "We are delighted to be supporting this program to increase employment opportunities for Yemenis, which will help reduce poverty in the country overall."

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Publication:Yemen Times (Sana'a, Yemen)
Date:Nov 25, 2009
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