Yemen Financial Sector Diagnostic Report
April 5, 2024
Introduction
This report was co-financed by the Yemen Resilience, Recovery, and Reconstruction Trust Fund, established by the World Bank in 2022 with the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO) as a seed contributing partner. It aims to support Yemen’s financial sector over a 10-year horizon.
Key Findings and Recommendations
Central Bank
- Dual Central Banking System: Yemen has a dual central banking system, with the Central Bank of Yemen-Aden (CBYA) and the Central Bank of Yemen-San'a.
- Policy Recommendations: Improvements are needed in transparency, operational efficiency, and regulatory oversight.
Banking Sector
- Limited Footprint: Traditional banking services have a limited presence in Yemen.
- Financial Health: Banks face challenges in terms of size, quality, and profitability.
- Anti-Usury Law: The law restricts usurious practices but requires enforcement.
- Policy Recommendations: Enhance regulatory frameworks, improve risk management, and increase access to credit.
Money Transfer & Exchange Services
- Money Exchangers: These services play a crucial role in facilitating cross-border transactions.
- Financial Footprint: The geographical distribution and number of money exchangers have been analyzed.
- Policy Recommendations: Strengthen regulations, improve transparency, and enhance operational efficiency.
Access to Finance
- Household Financial Inclusion: Despite challenges, efforts are being made to increase financial inclusion among households.
- Firm Financial Inclusion: Financial access for firms remains limited.
- Finance Gap: The gap between potential demand and existing supply of credit is significant.
- Constraints on Credit: Factors such as political instability and economic sanctions limit access to credit.
- Alternative Credit Providers: New providers are emerging to fill the gap.
- Policy Recommendations: Implement measures to improve access to finance, enhance regulatory frameworks, and promote innovation.
Conclusions
The report highlights the critical need for reforms in the Yemeni financial sector to improve stability, competitiveness, and innovation. Key recommendations include enhancing regulatory frameworks, improving operational efficiency, and promoting financial inclusion.
References
Annexes
- Sovereign Debt Exposure: Detailed analysis of sovereign debt exposure.
- Finance Gap: Comprehensive analysis of the existing and potential demand for credit.
- 2022 Yemen Enterprise Survey - Access to Finance: Insights from the enterprise survey.
Figures and Boxes
- Figures: Various charts and graphs illustrating key metrics such as money growth rates, exchange rates, asset compositions, and more.
- Boxes: Detailed analyses of specific topics such as the fiduciary assessment of the Central Bank of Yemen-Aden, business models of Yemeni banks, and the effects of the dispute between the two central banks.
This report provides a comprehensive overview of the Yemeni financial sector, highlighting both strengths and weaknesses, and offering actionable recommendations for improvement.
