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. (Read on …)