After nine years of armed conflict, Yemen has some of the lowest human development and financial inclusion indicators in the world. Despite efforts to close the financial inclusion gap, the MFI sector, with just 81,000 current outstanding loans, has struggled to reach scale and has contracted since the onset of conflict. Loan sizes have also increased, leaving the ultra-poor behind. Against this backdrop, Yemen’s Social Fund for Development (SFD) has actively pursued alternatives to address unmet credit needs of MSMEs, including establishing over 360 Village Savings and Loan Associations (VSLAs) with 8,000 members (50 percent women) between 2018-2021. SFD has ambitions to scale VSLAs to 1 million members (30k groups) nationally by 2030, and to use VSLAs as a “red carpet” to expand access to finance in rural communities. SFD is currently exploring opportunities to link VSLA members with financial service providers (FSPs). Efforts and conversations are underway with Al Kuraimi Microfinance Bank (to link VSLA participants to the Mfloos digital wallet), and Al Azal Microfinance Bank (which is taking over administration of some VSLA groups from SFD, with long-term ambitions to convert some VSLA members into clients). This research was commissioned by CGAP to understand efforts to leverage savings groups as an entry point for formal providers to reach underserved segments including women and rural communities in Yemen. Interviews and focus group discussions were carried out with over 100 participants during the summer of 2023 to support CGAP’s global research on financial inclusion in fragile contexts. We found that: • In a highly restrictive gender norms environment, savings groups generate new spaces for women's financial participation through a holistic support package (e.g., training and enhanced social capital) -- support often absent in formal financial models. • Formal financial products are likely to layer on top of holistic saving group services and other informal activity, rather than immediately replace them. • Consumers have unmet credit needs, but access barriers for women will be difficult for providers to overcome without support. • Providers are interested in leveraging savings groups as an entry point but progress on making linkages is nascent amid cost and access barriers. . In short, we found that VSLAs are already delivering quite a bit of “what women want”, making it easier to contribute economically to their families and communities, with the support of men in their lives, and in solidarity with women around them. For some women, this may be enough, while others seem ready for larger loans and engagement with formal providers. The providers consulted in the study see the VSLA groups as a growth opportunity but will likely need some support to overcome the barriers that will complicate engaging this segment (including proximity, digital exclusion, lack of ID, and restrictive gender norms). Actors like SFD can build on the foundation of their VSLA program and play a pivotal role in facilitating solutions to the opportunities and barriers outlined in this study.
