Yemeni microfinance models

Yemen is one of the least-developed countries in the Arab world. The widespread lack of opportunities for young people and women is contributing to the country’s slow pace of development. Mohammed Saleh Al-Lai, chief executive of Al-Amal Microfinance Bank, says: “About 76 percent of young people are below the poverty line in Yemen. Frustration and lack of opportunity among youth creates a fertile ground for terrorism and social instability.”

Al-Amal Microfinance Bank (AMB) – the first and largest microfinance bank in Yemen and the Arab Region, and the most successful of AGFUND’s banks for the poor – was established to respond to the needs of marginalised poor, particularly Yemeni youth and women, many who are economically active but are totally excluded by the formal banking sector. The bank offers a full package of financial services (credit, savings, insurance and housing loans) which help both improve the social and economic conditions of low∞income households and contribute to new business growth and job creation.
Starting operations in early 2009, the bank delivers its services through 13 branches over six Yemeni governorates and is planning to expand rapidly in 2012-2013. Many international organisations have recognised the bank’s achievements in providing services tailored to the needs of the poor through delivery models which are market-driven and sustainable. Hence, the bank has won several global and regional awards, most recently the “Islamic Microfinance Challenge” Award 2010, and the “Global Microfinance Achievement” Award in the ‘Most Innovative Microfinance Product’ category organised by C5 Group.

The bank attained a 23 percent market share of the Yemeni microfinance sector by the end of 2011. The number of loans disbursed by the bank reached 35,929 with a total disbursed portfolio of $8.5m, of which women account for 60 percent of total disbursed loans. Although somewhat affected by the political crisis in 2011, the bank managed to increase its number of active borrowers to 15,945. The impact of these loans goes far beyond the individual borrower with an estimated average of five members per household benefiting from AMB products – a total of 179,645 beneficiaries. AMB loans have also allowed businesses to grow creating an estimated 18,174 new jobs.

Through proactive marketing and promotion AMB has also been successful in attracting savers and their capital, making the bank the largest MFI offering micro-savings in Yemen and one of the largest in MENA. Today AMB has over 33,000 active savers with total savings portfolio of over $700,000 which represents close to 30 percent of AMBs outstanding loan portfolio.

AMB’s selection by The New Economy as one of the top MFIs globally is based on several key factors:
• Adopting innovative models and mechanisms for service delivery to those in need.
• Developing financial products that suit the environment in which they operate. Coupled with the ability of the bank to positively contribute to national development which many public and private institutions failed to achieve.
•Focusing on all parts of Yemeni society as well as low income households by introducing an assortment of new models of Islamic microfinancing.

A new focus
In the MENA region, stereotyped perceptions still persist among many financial institutions about the viability of young people as clients, and many MFIs continue to favour older clients, with established businesses and longer credit histories over “risky” youth investments.

The flip side of this status quo, especially given the demographics in Yemen, where youth aged 18-30 represent more than 50 percent of the economically active population, is that for forward-thinking financial institutions this age cohort, appropriately targeted, could offer a significant untapped new market opportunity.

Recognising this opportunity, AMB entered into a strategic partnership with Silatech, a Qatari social enterprise founded in 2008 by Sheikha Mozah bint Nasser, wife of Qatar’s Emir, which fosters young entrepreneurship and employment in the Arab region. In late 2009 AMB and Silatech launched a co-funded and co-created Youth Loan Fund (YLF) targeting young micro-entrepreneurs aged 18-30. From its inception, the fund garnered strong interest from youthful Yemeni entrepreneurs for whom access to formal financing had been restricted. This demand has continued and to date the fund has supported more than 11,500 young businesses including over 1,000 start-up projects who have obtained formal financing for the first time. They now represent close to 40 percent of AMBs overall active client portfolio. This fund has disbursed $2.3m in loans to date and now has a pool of funding over $5m which will target 50,000 young entrepreneurs by 2014. Mr. Mohammed Al-Lai, the CEO of AMB, said: “the youth we have loaned to have proven to be excellent, reliable clients, something which has changed perceptions among our staff and the wider community about the responsibility and maturity of young people in Yemen.”

Future directions
Building on the success of youth lending AMB, and Silatech introduced a Youth Savings Scheme which has to date enabled more than 7,000 disadvantaged young people – aged 18-30 to open savings accounts, current accounts, fixed∞term deposits and child savings accounts for their children. Starting from zero percent, youth aged 18∞30 now make up 15 percent of the total savings portfolio of AMB. To date young people have deposited more than $95,000 with AMB, demonstrating that savings products are as equally in demand as loan products.

Evidence suggests that each young savings account is being actively used by an average of five family members showing the broader social impact of this initiative. “The concept of asset building as a means to lift youth out of poverty and increase their ability to access economic opportunities is increasingly recognised but is largely untested in the region.

The work of AMB and Silatech is providing evidence which will serve to influence practitioners and policymakers throughout MENA, driving further uptake”, says Justin Sykes, manager of Social Innovation at Silatech. Building on the pilot scheme, AMB has joined as a key partner from Yemen, to become part of a regional savings initiative promoted by Silatech, GIZ and Sanabel for the MENA region. In summary, Al Amal bank has been the leading microfinance bank in Yemen and the Arabic world based on its sustained innovation into the development of financial products and service delivery, as well as understanding the needs of Yemen’s target groups.