Upgraded system of electronic payments and better access to data will ease the flow of money, increase transparency, and ultimately expand credit
WASHINGTON, July 25, 2013 – Economic activity in Yemen is constrained by an inefficient and outdated financial infrastructure that excludes the majority of the population and fails to match available funds with credit needs. A new World Bank Group project will support government efforts to create an economic environment in which financial institutions can reach out to and compete for new customers, with better means for evaluating risks and more effective ways of delivering funds.
“The ability of the private sector to generate jobs is a vital component of the roadmap for Yemen’s future, and it will depend on lenders being able to lend and borrowers having access to credit,” said Wael Zakout, World Bank Country Manager for Yemen. “Building the necessary confidence on both sides to achieve this will only occur in the sort of transparent and well regulated system this project will help develop.”
The Financial Infrastructure Development Project was approved by the World Bank Board of Executive Directors on Thursday July 25, 2013. It will be funded with a US$20 million grant from the International Development Association (IDA), the Bank’s arm for the world’s poorest countries. The project will support the implementation of core systems to enable the Central Bank of Yemen to exercise effective oversight of the financial system. This will include an upgraded electronic payment system that will facilitate a move away from the cash transactions that now dominate the economy and are much harder to monitor. Apart from increasing both stability and transparency, the migration of government programs to the new system will further promote inclusion by making social security payments quicker and more efficient.
The project will also support the establishment of a credit registry along with a series of data centers. These will provide the Central Bank of Yemen with the information necessary to supervise financial institutions by monitoring their exposure to risk and taking corrective actions when circumstances demand. Banks themselves will no longer lend blindly, as the credit registry will allow for informed judgments on the potential credit risk of new customers. While the new payment system will give banks an opportunity to offer new financial products, the credit registry will make it possible to expand their customer base safely. The lowering of interest rates as a result of better methods for assessing risk will remove one of the greatest barriers preventing many consumers from accessing credit. Women in particular often face collateral requirements that can reach up to 400 percent of the loan, and hence the project will also improve women’s access to finance.
Increased transparency and better regulation will build confidence in the financial system and draw in new consumers. While at the same time, improved access to information will allow banks to cater to a more diverse range of customers. The cumulative effect will be a more efficient and inclusive financial system that will be an engine of growth. More bank customers will mean more deposits, which in turn will mean more funds available for lending. Expanded access to credit will encourage and support the launch of a greater number of small enterprises, a critical source of growth and new jobs.
“Improving the financial infrastructure will bring immense benefits,” said Sahar Nasr, Lead Financial Economist, and Project Team Leader. “Along with shared economic growth and financial inclusion, the increased transparency will allow Yemen to adhere to international standards for the prevention of corruption and money-laundering, which is critical for Yemen’s sustainable development.”
Today’s announcement also represents the rapid fulfillment of a US$400 million pledge in support of the transition in Yemen made at a donor conference in September, 2012. In less than a year, the World Bank Group has invested almost US$300 million of the total amount pledged.