Yemen’s Money Exchange Market Faces New Challenges Amidst Conflict
The money exchange market in Yemen has long been a vital lifeline for millions of citizens, particularly those living in rural areas where formal banking services are scarce. However, the ongoing conflict has introduced new challenges and discrepancies in licensing for small exchange shops, exacerbating existing issues.
Licensing Disparities
According to sources, licenses are being awarded to established money exchange companies without undue obstruction, while small exchange shops operating in designated free zones (DFA) or liberated regions (IRG) face inconsistent licensing requirements. The Central Bank of Yemen (CBY) Sana’a issues licenses for shops operating in DFA areas, while CBY Aden handles licensing for IRG-based shops.
The Importance of the Money Exchange Market
The money exchange market has traditionally relied on a self-regulatory system based on mutual trust and market demand. This has enabled the sector to provide vital services such as FX remittance inflows and trade financing outflows. In fact, money exchange networks are the primary channel for Yemeni migrants’ FX remittances and trade financing outflows.
Challenges Facing the Money Exchange Market
Despite its importance, however, the money exchange market faces significant challenges:
- The vast majority of Yemen’s 33 million-strong population lives in rural areas, where poverty and illiteracy levels are high.
- An estimated 50% of the population is illiterate.
- Another 45% live on less than $2 per day.
- The lack of formal financial services in these areas has led to a reliance on informal remittance pathways and money exchange vendors, which often operate outside the regulatory framework.
- Most Yemeni citizens view commercial banks as unfamiliar or untrustworthy options.
Microfinance Institutions: A Promising Solution
In an effort to address this issue, microfinance institutions (MFIs) were established in 1997 to promote financial inclusion for the poor in rural areas. However, despite their promising beginnings, MFIs have struggled to make a meaningful impact due to limited sustainability and donor dependence.
The Conflict’s Impact on Microfinance Institutions
The conflict has further exacerbated these challenges, with many MFIs forced to operate on reduced funding and increased costs. The number of borrowers has declined significantly, while credit repayment rates have become increasingly difficult due to the economic crisis and displacement.
Recommendations for Addressing the Challenges
Some experts argue that the CBY should award separate licenses to money exchange companies, regardless of their pre-conflict establishment. This would help to stimulate competition and innovation in the sector, ultimately benefiting millions of Yemenis who rely on these services.
The Post Office System: A Key Player
The post office system, which was previously unregulated by the CBY, has also been impacted by the conflict. While it was once used to pay out social protection transfers and humanitarian cash assistance, its role remains unclear in the current context.
Conclusion
As the situation in Yemen continues to evolve, it is clear that the money exchange market will play a critical role in supporting the country’s economic recovery. By addressing the challenges facing this sector, policymakers can help to promote financial inclusion, stimulate economic growth, and support the well-being of millions of Yemenis.