Destruction of the economy..a report warns against the Houthis starting to deal with the electronic riyal
English - Thursday 10 March 2022 الساعة 07:58 am
Aden, NewsYemen:
An economic report warned of the intention of the terrorist Houthi militia to start providing electronic riyal services, which could cause negative repercussions on the Yemeni economy.
The report, issued by the economic unit of the Sana'a Center for Studies, said that taking any escalation positions unilaterally would deepen divisions in the institutions concerned with operating electronic payment services.
The center explained that this creates a situation in which two competing entities in the same country are both treated as legitimate monetary authorities by the international community.
The electronic riyal in the Houthi areas
The central bank in Sanaa, which is under Houthi control, issued a circular in March 2020 expanding the scope and type of financial service providers eligible for a license to provide e-riyal services.
The bank’s decision contradicted its circular No. 11 of 2014, issued before the militia took control of it, which granted banks operating in Yemen exclusively the right to provide electronic riyal services.
As for the new legal framework imposed by the Houthis, it created an opportunity for less regulated actors such as exchange companies, merchants, and other non-banking institutions, to obtain licenses from it to issue electronic money and provide electronic payment management services.
In the first quarter of 2021, the Central Bank of Sana'a officially authorized Wenet to operate the interbank payment settlement system and electronic wallets. More financial institutions were also allowed to provide customers with electronic riyals.
On the other hand, the Central Bank of Yemen in Aden, which is affiliated with the internationally recognized government, objected to the illegality of this circular, while senior banking officials warned of the possible repercussions of it.
The dominance of the traditional banking system
According to the economic report, recent statistics indicate that the number of Yemenis using the official banking system has grown during the conflict, although usage rates are still very low compared to the global average of about 69% in 2017.
He explained that nearly 2.9 million Yemenis (about 10% of the population) had at least one bank account by the end of 2019, including checking accounts, savings accounts, accounts with microfinance banks, and electronic money accounts.
However, many still prefer to use money exchange shops and companies; To conduct financial transactions where payment methods are more flexible and less expensive.
The number of branches of money exchange companies and shops increased significantly during the conflict with the decline in the supervision of the Central Bank, most of which are family-owned. In 2017, 876 companies of this type were recorded in Yemen, bringing this number to 3,244 in 2019.
According to the report, many exchange companies do not adhere to the minimum compliance procedures in the performance of their financial services. For example, they are allowed to perform certain functions such as facilitating cash exchange transactions or making money transfers, but they are transformed to perform banking functions such as accepting deposits and making loans.
Expansion of the electronic riyal services
Nevertheless, the scope of electronic riyal services expanded, and based on recently published indicators, the number of electronic money accounts increased significantly between 2017 and 2019, from about 82,000 to more than 800,000 accounts.
The report says that many of these accounts were temporarily opened after the Houthis banned the circulation of the new edition of the riyal, which prompted citizens who own the new edition to deposit it in electronic accounts opened with approved electronic financial service providers in exchange for old banknotes or electronic riyal balances.
The electronic riyal accounts were also opened to receive salaries and cash transfers related to humanitarian work and incentives, and to pay utility bills.
The challenges and prospects of the electronic riyal
According to the report, putting forward any comprehensive initiatives to strengthen the electronic money and electronic payment system is always linked to ending the political division and achieving stability in the monetary system, which must begin with unifying the Central Bank of Yemen and the official exchange rate, addressing the acute liquidity crisis, and ending the currency war.
He said that stakeholders interested in applying electronic financial services in Yemen should adopt a do no harm approach, and support the initiatives of banks and commercial companies to prepare for financial intermediation and expansion of e-commerce, but without distorting the monetary environment.
He stressed refraining from supporting any developments in electronic money services that are outside the current legal framework in Yemen.
He explained that humanitarian agencies trying to implement cash transfer programs through electronic payment mechanisms must confirm their commitment to the principle of doing no harm.
In the longer term, the report emphasized that international stakeholders should support the Central Bank of Yemen to develop strategic plans to stabilize the monetary system and enhance the stability of the financial system, including the development of a strategy that involves strengthening the payments infrastructure and facilitating a deliberate shift towards electronic payments.
