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Microfinancing powers small businesses in rural Yemen

“Together we’re building a brighter future.”

May 15^th, 2024

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In central Yemen’s high mountains, beekeepers harvest honey, for which the country is famous. In cities and villages alike, men wear a traditional woven kilt, known as a ma’awiz. Remote communities with no connection to public power supplies rely on solar energy instead. Honey, cloth, electricity: connecting these themes are a series of community-driven projects that offer training and finance to boost incomes, drive food security, and foster community connections.

The country was already one of the world’s poorest when war broke out in 2015. Nine years later, the economy continues to suffer.

Financial services have collapsed. Secure employment is hard, if not impossible to come by, and even those with work often go unpaid. The Yemeni rial has massively devalued and prices of the most basic staple products have soared in a country that imports around 80 percent of its food. These basic economic problems make borrowing money to build a business incredibly difficult – and nearly impossible for rural entrepreneurs.

Microfinancing powers small businesses in rural Yemen

The rural deficit

Some 61 percent of Yemenis live outside of cities and life is a constant struggle due to the conflict as well as climate change.

Like many services, microfinancing opportunities – designed to offer small sums that can still offer life-changing opportunities – are rarely available outside of urban areas.

This is where community-led projects can have an exponential impact. Through the Emergency Social Protection Enhancement and COVID-19 Response Project (ESPECRP), supported by the World Bank’s IDA, UNDP and local partner, Social Fund for Development (SFD), work with local communities to establish Village Savings and Loan Associations (VSLAs) that fill a void in funding.

Entisar Qara’a is a member of Al-Tarqeya’s VSLA, where she trained in sewing – something she has enjoyed since childhood. She speaks about the challenges her family faced, including her husband’s irregular work and “the double burden of conflict and rising prices”.

Noman Qaed, a father of seven, worked as a mechanic, but talks about the difficulties in finding clients that have money to pay – a knock-on effect of widespread poverty.

“Work slowed down dramatically. Even when I found work, people could not afford to pay what the job cost because they were struggling too," he says.

Turning passion into business

Through the VSLA programme, Entisar received 200,000 Yemeni rial (around US$377) to start her sewing business. This vital investment enabled her to buy a sewing machine, tools, and fabrics, and to turn her passion into income. And her business is a success. “Our living conditions have significantly improved,” Entisar says. “With a steady income, we can now afford more groceries and essentials for our household. My husband’s work can be inconsistent, but thanks to my sewing business, I can contribute to our family’s wellbeing. Together, we’re building a brighter future.”

“Our living conditions have significantly improved”

Self-managed microfinance

Adel Sufyan, a consultant at Social Fund for Development, explains the core concept behind VSLAs.

“Our goal is to revive the spirit of cooperation and cohesion within communities,” he says. “We achieve this by forming small groups – with separate groups for men and women – where members can save money regularly. These collective savings then become a pool of funds that members can borrow from to launch small businesses that benefit both the owner and their villages.”

The goal is to establish not just new businesses, but sustainable businesses. Each VSLA establishes a minimum monthly savings amount for members, with pooled savings accumulating for the first six months, during which time no member can apply for funding. After that, members can submit funding proposals. The association carries out a feasibility study to determine its profitability and if it meets the criteria, is put to a vote. If approved, the member will receive a loan exceeding their saved amount, with repayment agreed by all members.

“Participating feels like opening a bank account”

Community cohesion

“Members of VSLAs identify areas where small businesses can benefit individuals and their communities,” says Adel. Common choices include sewing, beekeeping, solar energy installation and livestock breeding, or weaving ma’awiz.

Arif Masoud is a member of Al-Qimah VSLA and today a skilled ma’awiz weaver. He beams with pride as he talks about the joy he gets sharing his creations with friends. “It’s a great way to spread the word. In the future, I plan to sell my ma’awiz directly to people I know, as I can command better prices than at the market.”

Nabil Al-Quradi, a father of six, has been a beekeeper for many years, but still found value in being a member of the Al-Amal VSLA. “The training I received has been immensely beneficial,” he says. “I learned new beekeeping practices, such as making bee feed to use in winter, and using natural remedies to keep my bees healthy.” Having used his funding to invest in more beehives, Nabil says his honey production has increased by 30 percent.

Noman, a VSLA member who learned how to install and maintain solar power equipment, maintains that training helped him support his family and brought long-term benefits to his wider community.

“Participating feels like opening a bank account,” he says. “The accumulated savings provide financial security for my family.”

In a rural village with no access to the public electricity supply, his vocation provides vital infrastructure. “In the past, people had to hire engineers from other regions to install solar systems, which was expensive and inconvenient,” he says. “Now, I can provide fellow villagers with high-quality services right here.”

Footnotes

The Emergency Social Protection Enhancement and COVID-19 Response Project (ESPECRP) supports geographically bundled interventions of nutrition-sensitive cash transfers and temporary employment, while also improving access to sustainable livelihoods, key services, and economic opportunities for areas affected by hunger, malnutrition, and climate related shocks. The project is in line with the World Bank’s integrated approach to improve food security resilience for Yemenis. Funded and supported by the World Bank’s IDA, the US$ 232.9 million ESPECRP is implemented by the Social Fund for Development (SFD), the Public Works Project (PWP), and the Small and Micro Enterprise Promotion Service (SMEPS) in partnership with UNDP Yemen.