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Microfinance During War: Preparing for the Unexpected in Yemen

by on Dec 21, 2015  |  posted in Microfinance  |  0 Comments

Yemen has long been in the frontline of political instability and economic fragility. The 2011 crisis had a deep negative impact on the Yemeni microfinance industry, sending its then-moderate progress as well as the entire economy several years backward. This was followed by a complicated national political reconciliation dialogue, and a relatively less turbulent recovery period. But it all fell to pieces: at the end of March 2015, war broke out in Yemen.

In an increasingly complex Yemen, the country’s nascent microfinance industry is facing an unprecedented situation. Yemen is divided by war between local fractions, economically suffocated by an enforced siege on its commercial ports, and pounded by a military coalition of over ten neighboring countries.

The Yemen Microfinance Network (YMN) is documenting the impact of the war on the microfinance industry in a series of publications, focusing on its member MFIs and their clients. Last month YMN published the first of these reports “A first insight on the impact of war on the industry.” The report reflects, in numbers, the extremely difficult situation our member MFIs have faced: the hostile environment characterized by an absence of security; lack of electricity and fuel for operations and transportation; unstable performance of communication services; and destruction of infrastructure. The biggest obstacle facing MFIs, however, has been the displacement and relocation of thousands of their clients.

Could we have prepared for this?

Most Yemeni MFIs had incorporated lessons from previous crises in Yemen and other countries into their crisis management and contingency plans. But these plans fell short in the face of the sudden, large-scale military crisis, which has torn apart the socioeconomic fabric across Yemen. The result? Severe physical and financial losses for both financial institutions and clients. And thus the industry is on the edge with many MFIs (especially Tier 2&3 MFIs) are on the verge of collapse.

Disaster Risk Reduction

Nonetheless, we identified several cases where MFIs were even more proactive and have modified their crisis management plans, operation methods, and formed new partnerships to manage the situation. Although such measures have proven helpful to reduce their own as well as their clients’ risk, they may not be able to ensure the MFIs’ survival unless Yemen reaches the post-conflict stage very soon.

Some highlights of the measures taken MFI’s at the institutional level include:

  • Relocating servers, assets of value, files, and creating several back-ups of important documents and clients data;
  • Establishing communication channels with the various parties involved in the conflict across the country, in order to ensure the safety of MFIs’ assets, manpower and ability to continue being operational even if at minimal levels;
  • Withdrawing cash reserves in branches in potentially high risk areas, and when necessary shutting down branches at risk, and moving their operations to safer locations;
  • Cessation of all group lending products.

At the client level:

  • Expanding institutional Takaful funds to also include crisis-affected clients.
  • Development of new partnerships with donors to offer cash relief disbursement services;
  • Offering newly-developed financial products to serve the changing needs of clients ahead of and during the crisis, i.e. loans for alternative energy systems (solar panels);
  • Offering clients other alternatives for loan repayment, i.e. field collection, and loan payments via post offices.

Meanwhile, YMN will continue to document the impact of war on the industry, its members, and their clients. Where we identify strong practices in the sector to increase the resilience of financial service providers and their clients, we will share our learnings with the SEEP Network’s Disaster Risk Reduction Program (supported by Citi Foundation).

As the managing director of the Yemen Microfinance Network, Ali Abutaleb works with YMN member MFIs, national and international partners, and stakeholders to enhance the performance of the Yemeni microfinance industry, and upscale its resilience.

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