Yemen Financial Inclusion and Development Diagnostic

The World Bank (WB) is seeking to hire a firm to undertake a National Financial Inclusion and Development (NFID) Diagnostic for Yemen.  The firm will work with the staff team to a) conduct a survey for financial service providers (FSPs) based in the regions of Yemen under the control of the Internationally Recognized Government (IRG), including those that operate across all of Yemen; and b) interview key relevant public and private sector stakeholders.  Once a draft diagnostic has been prepared, the firm will also work with the WB staff in validating the diagnostic findings and recommendations with key stakeholders. The diagnostic will inform the development of a National Financial Inclusion and Development Strategy (NFIDS) for Yemen, which will be developed jointly by the World Bank and the CBY-Aden in consultation with other stakeholders. The NFIDS would present best estimates of current levels of financial inclusion of individuals and MSMEs and the status of financial sector development; set financial inclusion and development goals, objectives, and targets; identify opportunities and a sequenced set of actions to achieve the objectives, and key performance indicators to monitor outputs and outcomes; and, define institutional arrangements to implement and monitor the strategy.  The NFIDS would also draw on other available assessments, and available demand side and supply-side data. Once a draft NFIDS is developed, the WB staff team will support the Central Bank of Yemen – Aden (CBY-Aden) in validating the NFIDS through a validation workshop, securing its approval by the appropriate authorities, and organizing a public launch. 1. Background Yemen’s economic crisis reflects a decade of conflict and institutional fragmentation. Since 2015, real GDP per capita has declined by nearly 60 percent. The country now operates as two economic zones: areas under Houthi control host about 70 percent of the population, while hydrocarbon-rich areas are under the Internationally Recognized Government (IRG). Oil production remains constrained by the export blockade in place since October 2022, limited investment, and ongoing insecurity. Non-oil sectors face significant constraints, including limited access to finance, disrupted supply chains, overlapping tax regimes, weak governance, and regulatory distortions. The decision to relocate the Central Bank of Yemen (CBY) from Sana’a to Aden in 2016 has led to the fragmentation of the financial sector. This has led to two central banks currently in Yemen, the CBY-Sana’a, controlled by the Houthis, and the CBY-Aden, controlled by the IRG. Yemen’s financial sector structure reflects the division caused by the ongoing conflict, with banks and other financial services providers operating in two distinct regions under the regulation and supervision of the two Central Banks, leading also to the bifurcation of the value of the Yemeni Riyal (YER) into two separate values or “versions” of the currency in the two areas. While the banking system has continued to operate with three categories of banks – commercial banks, Islamic banks and microfinance banks, it’s role in financial intermediation has been decreasing.  Bank credit to the private sector has been on a decreasing trend; private sector credit to GDP ratio has decreased from around 8 percent in 2009 to an estimated 2.4 percent in 2021 (as compared to 53 percent for the MENAAP region in 2020, World Development Indicators). In recent years, in many banks have shifted their headquarters to Aden to avoid sanctions and enable their continued operations. The conflict and challenges faced by the financial sector have also constrained financial inclusion.  According to latest data available from the WB’s Global Findex database, in 2022, only 12 percent of Yemenis over the age of 15 had a transaction account (a bank account or an e-wallet). Not surprisingly, this figure is much lower than the average for the MENAAP [1] region (39 percent in 2021 and 47 percent in 2024) and in low-income countries (31 in 2021and 33 percent in 2024). Gender and geographic differentials in access to accounts is estimated to be very high; only 5% of women and only 8% of rural residents are estimated to have accounts.  Micro, small and medium enterprises (MSMEs) face significant access to finance constraints. In 2022, under 10 percent of formal firms reported having a loan (Yemen Enterprise Survey 2022); this compared to 25 percent in the MENAAP region (World Bank Enterprise Surveys). [2] 2. Scope of Work The scope of work expected to be undertaken by the consultancy firm is described below: a. Conduct survey of FSPs: The FSP survey should cover all bank and non-bank FSPs and microfinance programs active in IRG areas.  The FSP survey should be administered to the FSPs in both English and Arabic and be complemented by hands-on support to FSPs for completing the survey, obtain missing information, and correct information that is found to be incorrect on review.