Yemeni Islamic banks have yet to achieve their full potential in supporting the country's development, said participants at a conference on Yemeni Islamic Banks last week.
The two-day conference, which addressed the future of Yemeni Islamic banks, was organized by the Yemeni Businessmen Club (YBC). It was the first of its kind in Yemen since Islamic banks emerged 15 years ago.
Ahmed Ba Zara'a, the director of the YBC and Shamil Bank of Yemen and Bahrain, called on all active Islamic Banks in Yemen to cooperate with each other. He suggested they be open to other financial sectors in order to benefit from the experience.
Dr. Yahya Al-Mutawakel, Minister of Industry and Trade, attended the opening ceremony of the conference. He said that the conference coincided with the unexpected blow to Yemen's economy as a consequence of the world financial crisis. He stated that in order to alleviate the negative impacts of the crisis, both the government and the private sector should take full responsibility.
"The government and the private sector should work together not only to alleviate the negative impacts of the world financial crisis, but also to push social and economic development forward and optimize its benchmarks," said the minister.
The minister believes that working to achieve high economic growth rates in non-oil sectors such as the Islamic banking sector, would contribute to the reduction of unemployment and poverty in the country. During the minister's speech in the opening ceremony, he described the banking sector as "the wheels that push development and growth forward." He believes that banking reforms are an important component of all economic, administrative, and financial reforms and have been since 1995.
'people orientated'
According to Al-Mutawakel, the difference between Islamic banks and conventional banks is that Islamic banks consider people essential partners in business. Islamic banks provide loans to small Yemeni businessmen without interest. In return, the bank becomes a shareholder in the business and receives a share of the profits if the business succeeds. As a shareholder, the bank is also considered partially responsible if the business fails.
"Money doesn't generate money, but the people increase it," said Al-Mutawakel. He believes that because of this feature, Islamic banks in the country operate positively. This has enabled them to avoid the negative effect of the world financial crisis.
Yemeni Islamic banks are making progress in comparison to conventional banks. In 2009, 45 percent of all loans in Yemen were supplied by Islamic banks. According to Ahmed Al-Samawi, Governor of the Central Bank of Yemen, the rate of loans supplied by Yemeni Islamic banks increased from 39.9 percent of total loans in 2008 to 44.5 percent of total loans in 2009.
Tadhamon International Islamic Bank is the first bank in Yemen while Saba Islamic bank is the fourth, said Ali Al-Wafi who is a Yemeni economist. Yemeni Islamic banks are also ranked first in the level of foreign cash reserve available, according to the minister of industry and trade.
Areas for improvement
During the conference, participants and officials came together and discussed a number of the errors that administrations of Yemeni Islamic banks have committed during the previous period. "Even all of those positive developments by the Islamic banks in Yemen, but the developmental, social and investing roles of this sector are still limited or at least below the desired level," said the minister.
The minister explained that this becomes obvious when we compare the difference between the total deposits of Islamic banks in 2008 and 2009. Total deposits increased from YR 1.2 trillion in December 2008 to more than YR 1.3 trillion in December 2009. On the other hand, loan and credit levels for economic projects decreased from YR 418 billion to YR 411 billion during the same period.
According to the minister, by the end of December 2009, it became apparent that the percentage of loans allocated to trade exceeded the percentage allocated to other sectors by over 60 percent. Only 18 percent of loans were allocated to the industry sector, five percent for construction and 17 percent for agriculture and fishing.
Some Yemeni businessmen accused Islamic banks in Yemen of being family businesses that favor big businessmen and family members over smaller businessmen. Ahmed Juma'an, a Yemeni businessman who participated in the session, said that the fact that the four existing Islamic Banks are family businesses, affects loan approval. The chairman of the board of Saba Islamic Bank, Hameed Al-Ahmar, denied this accusation by stating that his family's share of profits in the bank does not exceed 15 percent. He also said that his bank has over 6,400 shareholders including businessmen, individuals and corporations.
"The Islamic banks are open to all and there is no monopoly of a specific segment," he said.
Ba Zara'a, from the Shamil Bank of Yemen and Bahrain, said that the claim that Islamic banks in Yemen are family businesses is not an obstacle. Dr. Abdulbari Mesh'al, head of consultative corporation in pitain, chaired the session. He agreed with Ba Zara'a that family businesses are not an essential problem.
Another issue raised in the session is the difficult access to small business loans from Islamic banks. When someone goes to an Islamic bank and requests a loan for his or her small business, they are faced with tough and inaccessible regulations. Al-Ahmar responded to this by saying that Islamic banks in Yemen are working under the law of Islamic banks and other regulations set by the Central Bank of Yemen. He said that the regulations that some people complain from need to be applied because the Central Bank of Yemen would not accept if they did not follow all crediting and loan regulations.
Recommendations
During the conference, the minister provided Islamic bankers with some suggestions that he believed would boost the role of the Islamic banking sector in the development of the economic, social and investment fields.
The minister suggested that, instead of only giving loans to trading projects, Islamic banks should give approval for loans provided to industrial and agricultural projects. This will result in the reduction of unemployment and poverty in the country. By applying this method, explained the minister, Islamic banks would be able to transform short-term investments into medium and long-term investments. He also suggested studying the possibility of having local and international Islamic banks cooperate in Yemen.
The minister recommended that Islamic sukuk, a new concept in Islamic banking implemented in the Emirates and pitain, be thoroughly studied in order to finance projects that promote investment and productivity. He also promoted teaching Islamic banking at Yemeni universities and institutes to qualify more Yemenis in this sector and to encourage research.
By Ali Saeed