MICROCAPITAL STORY: Microfinance as a solution to unemployment in Yemen

According to the Yemen Times, the Yemeni government admitted that its strategy to reduce unemployment to 12 percent by 2010 was failing in a recent official report by the Yemeni Ministry of Planning and International Cooperation. The percentage of unemployment in Yemen varies from source to source because of a divergence in the methods of calculation used and the lack of accuracy of basic figures such as population, percentage of Yemenis who are of working age and so forth. Official statistics put the figure at no less than 16 percent whilst according to Taher Mujahid Al-Salehi, an economist from the Yemeni Research and Studies Center, an unemployment figure of at least 35 percent is more realistic. The official report attributed the lack of progress in reducing unemployment to the Yemeni economy’s inability to provide new jobs for youth. In addition, the low level of qualification among the national labor force remains a significant obstacle to unemployment reduction in the country. The report suggested a number of ways to improve employment figures including conducting qualitative training programs for the country’s labor force and providing employment offices with the means to more effectively advertise job vacancies.

The employment problem is exacerbated by the fact that the Yemeni labor force is increasing annually as a result of the high population growth and the entry of increasing numbers of women into the work force in recent years. A growing number of unemployed youth with higher levels of education adds to the challenges since this increases minimum job expectations. Yemeni universities produce about 30,000 graduates each year, at least half of them women. Most apply for government positions with the Civil Services Authority although some have been waiting for more than ten years for jobs. In general, 10,000 government positions go to new recruits each year, 40 percent of those vacancies being taken up by women. In contrast, the private sector only employs 7 percent of working Yemeni women. Some employment is also provided by the army, civil security sectors as well as the private agricultural sector. Overall statistics show that the job seeking population is in the region of five million people, of which 900,000 are unemployed. This puts the unemployment rate at about 20 percent.
On the flipside, Mohammed S. Al-Lai, CEO of Al-Amal Microfinance Bank, is of the view that microfinance can offer solutions to unemployment and poverty in Yemen. Since becoming fully operational in January 2009, the bank has received around 3000 applications for credit, of which 1300 proposals have been accepted and 35 percent of those were for women. Al-Lai believes that two interventions may help Yemen address the unemployment issue. The first is to provide opportunities for entrepreneurs to create small businesses by offering them microcredit loans, much like the method originally employed by Dr. Mohammed Yunus to reduce unemployment in Bangladesh. The other is to increase job opportunities by creating labor intensive projects (such as infrastructure development) and developing the Yemeni banking sector. The banking sector has great potential to expand as it currently only provides employment to 2000 persons.

Al-Lai nonetheless has some concerns that the private sector may not fully support the microfinance industry in Yemen. As Al-Salehi points out, the infrastructure in Yemen is poor and problems associated with corruption and a weak justice system are rife. This has deterred and continues to deter private investors from entering the market in a significant way. It will also take time to educate the private sector about microcredit and the fact that the products offered to the poor are loans as opposed to grants. Al-Lai expects the situation to improve and predicts that by 2013, Al-Amal Microfinance Bank would have facilitated the creation of 100,000 small businesses across the country.

Another initiative by Al-Amal Bank that was announced in the Yemen Post recently related to the bank’s development of a youth-targeted loan fund in partnership with Silatech. Silatech is an organization that was founded in January 2008 by Her Highness Sheikha Mozah bint Nasser Al-Missned of Qatar to address the need to create new opportunities for young people across the Arab world by engaging the private, public and civil society sectors to promote large-scale job creation, entrepreneurship and access to capital for young people. The loan fund, targeting youth aged 18-30, will provide loans to more than 800 micro-entrepreneurs during an initial 24 month pilot period. It is estimated that these loans will provide close to 1000 employment opportunities to Yemeni youth. The program will initially target urban youth in the major Yemeni cities, but loans to significant numbers of youth in rural and underserved areas of the country will be extended after the pilot period. The fund will be introduced along with other youth-focused initiatives such as entrepreneurship training, business development services and access to markets.

Data on the Al-Amal Bank is currently not available on the MIX Market portal. It is an affiliate member of Sanabel, an NGO registered in the US, Cairo and Egypt, which has since its establishment in 2002 been been promoting growth, innovation and best practice in the microfinance sector in several Arab countries. As reported by Sanabel, Al-Amal Microfinance Bank was established by the Law (23) for the year 2002, as the first microfinance bank in Yemen. The bank was an outcome of the joint efforts of the Yemeni Government represented by the Social Fund for Development (SFD), the Arab Gulf Program for United Nations Development Organizations (AGFUND) and the private sector. Al-Amal bank is committed to comply with the set of international financial reporting standards (IFRS) endorsed by CGAP, to report to the MIX Market portal and Sanabel and to post updated figures and financial statements on its website. Currently, reports from the Al-Amal Bank website show that it has a total of 2925 active borrowers as at May 2009 (1837 male and 1088 female). The total amount of loans disbursed as at 31 May 2009 is USD 408,411 (of which USD 338,951 were disbursed to men) and the total amount of savings obtained as at the same date is USD 55,238.

The use of microfinance as a means to reduce unemployment as observed by Al-Lai is not a new idea. In 2000, the International Labour Organization commissioned a report on the role of microfinance in the United Kingdom. According to the report which was produced by the independent National Institute for Economic and Social Research in London, governments in certain countries in North America and Western Europe have previously encouraged the growth of micro-enterprises as part of overall efforts to combat rising unemployment. These countries have introduced programmes to encourage the unemployed, young, welfare groups and disadvantaged communities to set up their own businesses. The report concluded that the provision of micro-credit is important in this context and suggested that governments focus on the provision of local microfinance and business development support by specialists. The report noted further that financial support for the unemployed has tended to be highly restricted and unemployed people often face barriers in accessing commercial loans. Nonetheless, the question of whether microfinance is a solution to unemployment remains a complex issue that involves multiple factors including gender considerations, cultural and socio-economic considerations all of which vary from country to country.

By B Chong, Research Assistant

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