Small Businesses in Yemen Lack Credit Lines
The inability of small businesses to get a credit line is actually a huge issue, dull perhaps but consequential. It impedes the diversification and growth of the economy by region, product and ownership. As the recent tightening of credit globally stunted the world economy, in Yemen negative result of the failure of banks to grant credit to small and medium businesses is magnified by other economic factors including corruption and the lack of infrastructure including electricity and roads. At the same time the banks make a wide range of inappropriate loans to “influential persons”, a practice that lead to the seizure of the Watani bank a few years ago.
Micro-credit has been one of the most effective methods globally of raising poverty stricken groups to self sufficiency. When people have an opportunity to better their future, they usually do, and work very hard doing it. The heart of a healthy economy is small businees, and in Yemen there are so many monopolies and unfair practices. Factionalism and identity politics are the norm, with marginalized groups also excluded from credit and therefore economic opportunity. Its another detrimental offshoot of the unipolar configuration of the political landscape and the increasing consolidation of economic structures (including land ownership) in the hands of the elite (Saleh and his gang). The Yemen Post reports on a study by the IFC:
The Yemeni banks are unwilling to grant credits for small and medium enterprises or they may give conditional credits for high profits due to high risks, a study has said.
The study conducted by the International Finance Corporation also noted that most of the small and medium enterprises in Yemen are not much qualified for loans because they don’t have enough guarantees. The ratio of credits to deposits is very low, about 33 percent, it finds, adding that only 4 percent Yemeni people have bank accounts.
On crediting the private sector, the study said that the credits given by the Yemeni banks to the private sector decreased from YR 431.4 billion in August 2008 to YR 409.1 billion in August 2009.
The crux of the problem lies in that the banks never credit small and medium enterprises under the guarantee of movables because of high risk.
And the high risk comes due to the lack of priority guarantees for the interests of parties as well as the slowness and unreliability of the implementation of guarantees.
Highlighting guarantees and debt repayment, the study suggested that creditors have credibility in and knowledge about debtors.
The IFC, an affiliate to the World Bank Group, has ranked Yemen in a recent report on business doing in 2010 on easy credits which reflect the level of credit information sharing and creditor and debtor legal rights in the 150th place, among 183 countries.
In the report, Yemen was said to have recorded two points of ten in the legal right strength index which measures the activity of movable guarantees.
The study, however, urged to introduce more legislation reforms to enhance the debtor rights to movables, creating more effective records for movables and notification declaration; raising awareness about and building the capacity of the parties involved in profits for guarantee-for-movable financial system.
The reforms will be reflected in the best interest of the country, providing easy credits, helping an increase in businesses and further corporate growth; more jobs; increasing tax volume, decreased risks and high profits for creditors, it concluded.
