Years of conflict have deepened the Yemeni economy’s longstanding reliance on cash. The country’s underdeveloped formal banking and financial infrastructure hinders credit intermediation, and most economic activity is conducted on a cash basis, from day-to-day purchases to large-scale transactions. As in other cash-based economies, liquidity constraints and immediate consumption needs hinder long-term investment and economic development, exacerbating unemployment and slowing wage growth. The conflict has severely inhibited economic activity and distorted the allocation of resources. Prolonged political instability and armed conflict have had a deeply negative impact on Yemen’s economy, yet the country’s financial sector has demonstrated remarkable resilience and adaptability. The main financial players operating in Yemen are banks and money exchangers. This analysis shows that their liquidity-focused business model gives money exchangers an important advantage over banks in Yemen’s cash-dominated economy.
Authors
- Citation
- “ World Bank . 2024 . Yemen Financial Sector Diagnostics . © Washington, DC: World Bank . http://hdl.handle.net/10986/42367 License: CC BY-NC 3.0 IGO . ”
- Collection(s)
- Financial Sector Assessment Program
- DOI
- https://doi.org/10.1596/42367
- Identifier externaldocumentum
- 34410019
- Identifier internaldocumentum
- 34410019
- Pages
- 152
- Published in
- United States of America
- Region country
- Yemen, Republic of
- Report
- 194269
- Rights
- CC BY-NC 3.0 IGO
- Rights Holder
- World Bank
- Rights URI
- https://creativecommons.org/licenses/by-nc/3.0/igo
- UNIT
- EFI-MNA-FCI-Finance-1 (EMNF1)
- URI
- https://hdl.handle.net/10986/42367
- date disclosure
- 2024-11-06
- region administrative
- Middle East and North Africa
- theme
- Financial Infrastructure and Access,Financial Stability,Finance,Enterprise Development,Private Sector Development,MSME Development,Payment & markets infrastructure,Financial Sector Integrity,Financial Sector oversight and policy/banking regulation & restructuring
Files
Table of Contents
- YEMEN FINANCIAL SECTOR DIAGNOSTICS 1
- YEMEN FINANCIAL SECTOR DIAGNOSTICS 3
- April 5, 2024 3
- Table of Contents 4
- BOXES 5
- FIGURES 5
- TABLES 10
- Acknowledgments 11
- Abbreviations and Acronyms 12
- ABBREVIATIONS AND ACRONYMSDescriptionAMLAnti-Money LaundryATMAutomated Teller MachineCAC BankCooperative Agricultural Credit BankCAGRCompounded Annual Growth RateCBYCentral Bank of Yemen CFTCountering the Financing of TerrorismDFAYemen De facto AuthorityFXForeign ExchangeGDPGross Domestic ProductIFCInternational Finance InstitutionsIMFInternational Monetary FundIRGInternationally Recognized GovernmentLCLocal CurrencyMSMoney Supply MENAMiddle East and North AfricaMVTSsMoney & Value Transfer ServicesNGONon-Governmental OrganizationOSESGYOffice of the Special Envoy of the Secretary General for YemenPSFPostal Savings FundROAReturn On AssetsROEReturn on EquitySMESmall and Medium Enterprise SMEPSSmall and Micro Enterprise Promotion ServicesUSUnited StatesUSAIDU.S. Agency for International DevelopmentYERYemeni RiyalYLGYemen Loan Guarantee YPPSAYemen Post and Postal Savings Authority 12
- Executive Summary 15
- Introduction 23
- Chapter 1. The Central Bank 27
- YEMEN’S DUAL CENTRAL BANKING SYSTEM 27
- THE CENTRAL BANK OF YEMEN-ADEN 32
- POLICY RECOMMENDATIONS FOR THE CBY-ADEN 45
- Chapter 2. The Banking Sector 49
- THE LIMITED FOOTPRINT OF TRADITIONAL BANKING SERVICES IN YEMEN 49
- FINANCIAL HEALTH OF YEMENI BANKS: SIZE, QUALITY, AND PROFITABILITY 52
- THE ANTI-USURY LAW 64
- POLICY RECOMMENDATIONS FOR THE BANKING SECTOR 68
- Chapter 3. Money Transfer & Exchange Services 71
- THE BUSINESS OF MONEY EXCHANGERS 71
- THE FINANCIAL FOOTPRINT OF MONEY EXCHANGERS 81
- POLICY RECOMMENDATIONS FOR THE MONEY EXCHANGERS 99
- Chapter 4. Access to Finance 101
- FINANCIAL INCLUSION AMONG HOUSEHOLDS 101
- FINANCIAL INCLUSION AMONG FIRMS 103
- ESTIMATING YEMEN’S FINANCE GAP 106
- CONSTRAINTS ON FIRMS’ ACCESS TO CREDIT 108
- THE RISE OF ALTERNATIVE CREDIT PROVIDERS 116
- POLICY RECOMMENDATIONS TO IMPROVE ACCESS TO FINANCE 124
- Conclusions 126
- References 129
- Annex I. Sovereign Debt Exposure 131
- Annex II. The Finance Gap 134
- THE EXISTING SUPPLY OF CREDIT 134
- THE POTENTIAL DEMAND FOR CREDIT 135
- FINANCE GAP SUMMARY 137
- Annex III. The 2022 Yemen Enterprise Survey – Access to Finance 139
- INTRODUCTION 139
- BACKGROUND INFORMATION 140
- ACCESS TO FINANCE OF FORMAL ENTERPRISES 142
