LEARNING

REPORT #2 Al Amal Rural Youth Case Study

March 2015

IFAD Rural Youth Economic Empowerment Program (RYEEP)

(IFAD Grant Number: I-R-1419-MCI)

Prepared by:

Timothy Nourse Making Cents International

In Collaboration with:

Al Amal Microfinance Bank and Silatech

For:

Abdelkarim Sma Regional Economist

Near East and North Africa Division International Fund for Agricultural Development

(IFAD)

March 20, 2015 Washington D.C.

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Contents 1. Executive Summary ................................................................................................................. 2

2. The Rural Youth Economic Empowerment Program Learning Agenda .................................. 3

2.1 The Challenge of Serving Rural Youth .................................................................................. 3

2.2 RYEEP Pilot Projects .............................................................................................................. 3

2.3 RYEEP Learning Agenda – The Starting Point: ...................................................................... 5

2.4 RYEEP Learning Topics .......................................................................................................... 6

3. Case Study: Al Amal Rural Expansion–Adapting successful urban products for rural Yemen ... 8

3.1 Project Summary .................................................................................................................. 8

3.2 Target Beneficiaries .............................................................................................................. 9

3.3 Financial Services Offered .................................................................................................... 9

3.4 Non-financial Services Offered ........................................................................................... 12

3.5 Project Results and Learning to Date ................................................................................. 13

Learning Topic 1: Financial Products that are Market-Based and Tailored to Rural Youth . 14

Learning Topic 2: Delivery of Appropriate Supportive Non-Financial Services ..................... 16

Learning Topic 3: Technology for Cost-Reduction, Alternative Forms of Finance ................ 16

Learning Topic 4: Linkages to Facilitate Informal to Formal ................................................ 16

Learning Topic 5: Strategies for Scaling Products in Rural Environments ............................ 17

Conclusion ..................................................................................................................................... 18

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1. Executive Summary With funding from the International Fund for Agricultural Development (IFAD) and in partnership with Silatech,

Making Cents International is implementing the IFAD Rural Youth Economic Empowerment Program (RYEEP); a

three-year grant to increase employment and self-employment of young people aged 15-35 in the Near East and

North Africa (NENA) countries of Egypt, Yemen, Morocco and Tunisia. The program provides capacity building

and technical assistance to local institutions to pilot youth-inclusive financial (YFS) and non-financial service

(NFS) delivery models to rural youth and to the enterprises that employ them. By 2016, RYEEP pilot projects will

reach more than 18,000 young people, facilitating formal sector or self-employment to over 3,750 youth and

delivering financial services to over 15,000 youth.

As important as these quantitative outputs is the knowledge generated by these five pilots; and thus a major

focus of the program is on capturing and disseminating this learning, with the goal of helping IFAD and youth-

inclusive financial services practitioners develop more effective and scalable programs for rural youth. The

program builds upon what we know works, to extend learning around five research topics:

Adapting and Developing Effective Financial Products for Rural Youth

Determining the Appropriate Level and Delivery System for Supportive Non-Financial Services

Using Technology to Lower Costs and Provide Youth with Alternative Forms of Finance

Linking Products or Institutions to Facilitate Movement from Informal to Formal Financial Services

Designing Innovative Approaches for Scaling Products in Rural Environments

The pilot project in Yemen has begun to produce learning across these learning topics. The Al Amal Rural

Expansion project aims to reach 6,000 rural youth with a mix of basic and adapted financial and non-financial

services. After one and one half years of operations, the project has developed a rural expansion strategy and

launched operations in 13 rural areas that are now serving 3,583 youth and counting rapidly. Experience to date

indicates that high pent-up demand for financial services in general has not yet required Al Amal to tailor its

products significantly for youth, but that as they expand further, additional refinements will be necessary to fuel

growth and secure repayment. In addition, technology and local capacity building are coming to the fore as

critical issues that will drive long-term success of the program.

This Learning Report is one of five learning products to be delivered by the RYEEP grant. It introduces the learning

agenda of the overall program and focuses on what has been learned so far from the pilot project in Yemen. It

will be updated at program end to capture lessons gained after publication.

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2. The Rural Youth Economic Empowerment Program Learning Agenda

2.1 The Challenge of Serving Rural Youth

Rural youth in developing countries make up a very large and vulnerable group. Globally, three quarters of the

poor live in rural areas, and about one-half of this population is young people.1This young and growing

population is confronted with a number of challenges to building sustainable livelihoods. The quality of

education in rural areas is worse than in urban areas and does not prepare youth adequately for existing

livelihood opportunities. The lack of basic infrastructure such as electricity and water supply limits livelihood

options and burdens youth with responsibilities that can reduce training and educational opportunities. While

agriculture is for many the most viable livelihood option, growing populations, the ongoing subdivision of land,

and soil degradation means that youth often lack access to or control of sufficient land for farming, thus

preventing or inhibiting their pursuit of this opportunity. Finally, for girls in particular, more traditional cultural

stereotypes in many societies reduce livelihood options to those within the household.

Nonetheless, rural youth are economically active and options exist for improving their livelihoods. In contrast to

urban areas, the problem for youth in rural areas is not one of unemployment, but underemployment. Youth

are active in a variety of farm and non-farm activities and for those who cannot pursue farming directly, the rural

non-farm sector can serve as the “ladder” from underemployment in low-productivity, smallholder production;

to regular wage employment in the local economy, and from there; to jobs in the formal sector.2In this context,

the challenge for those interested in rural youth development is to develop the right mix of cost-effective and

appropriate financial and non-financial services that will increase youth capacity and access to the resources

that they can use to invest in farm or non-farm opportunities.

2.2 RYEEP Pilot Projects The five RYEEP pilot projects are designed to address many of these challenges and to test different financial

and non-financial service delivery models for rural youth. Pilots are implemented by local partners, including

commercial banks, microfinance banks, local community development organizations, and for-profit companies,

and supported technically by Making Cents International and Silatech.

Plan Egypt (Egypt) – RYEEP is supporting Plan Egypt (Plan) to modify its existing village savings

and loan (VSLA) financial model to meet the needs of rural young people in the form of a youth

savings group (YSG) model. Additional non-financial services, such as enterprise development

training, offered during savings group meetings or at partner CDA training sites, will help build

beneficiaries’ capacity to improve their income generating activities and effectively utilize

financial services (formal or informal). In addition, Plan Egypt is developing partnerships with

1Bennell, Paul. Investing in the Future: Creating Opportunities for Young Rural People. Publication. IFAD, Dec. 2010, pg. 1. 2Bennell, Investing in the Future, pg. 6.

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local, formal financial service providers (e.g. Alexandria Businessmen’s Association) to encourage successful YSG

members to graduate to formal services such as credit and formal savings accounts.

The project will demonstrate whether the large-scale outreach demonstrated by VSLA programs in other

countries can be replicated with rural youth. The additional training component through the YSGs will provide

information to practitioners on low-cost ways to serve youth with non-financial services, while linkage activities

will explore how informal savings can serve as a stepping stone to greater financial service access.

Al Amal Microfinance Bank (Yemen) – RYEEP is supporting Al Amal Microfinance Bank (Al

Amal) to develop and implement its “Rural Finance Strategy for Youth.” Al Amal has proven

successful in the development of youth-inclusive financial services in urban areas, and is now

looking to increase its capacity in rural and youth-inclusive finance and then translate these

skills into service delivery to rural youth. Al Amal is exploring a variety of Islamic products3 in

rural areas, including those for livestock, which will test models beyond the typical Murabaha

model.4 In addition to tailoring its financial products and service delivery to the rural youth

market, Al Amal is partnering with its sister organization, the Reyada Foundation, to develop

and test partnership models that assist in the delivery of non-financial services, such as training on finance,

entrepreneurship, and specific livelihood practices.

The project will demonstrate how a model of urban youth financial and non-financial products can be adapted

and delivered cost-effectively in rural areas.

Al Barid Bank (Morocco) - Through RYEEP, Al Barid Bank (Al Barid) is adapting its brand-new

youth savings product, Tawfir al Ghad (designed in partnership with Silatech), launched

nationally in June 2014, to better suit the distinct needs of the rural youth clientele. In

addition to savings, Al Barid Bank will also work with microfinance institutions (MFI) to link

qualified rural youth to formal enterprise lending options and to encourage MFI youth

clientele to open Tawfir al Ghad savings accounts and manage their loan disbursements and

repayments through these accounts. In addition to the financial service provision, Al Barid will use market

research to develop customized financial literacy training and outreach models to reach rural youth. Al Barid will

also seek out partnerships with other rural youth-focused organizations to embed these trainings into existing

outreach programs.

3 Islamic Products: financial products that are compliant with sharia law, e.g. do not charge interest 4A form of Islamic lending that finances a specific good or asset for a fixed mark-up

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The project will provide learning about how large formal financial institutions can sustainably increase savings

services to rural youth. In addition, it will provide insights into how formal institutions can effectively partner

with MFIs to extend additional enterprise loans to young people.

Pro-Invest (Tunisia) - Leveraging its highly successful MobiWorks technology,

Pro-Invest will pilot MobiPOS, a mobile phone application to address supply

chain, inventory and transaction bottlenecks experienced by young rural shop

owners that by design will enable retailers to use a basic mobile phone to automate and record what they are

doing manually. This will create a formal transaction and credit history that can be used to access trade finance

from suppliers and to improve business performance through efficiency gains. The formal transaction data will

also be used as a proxy credit rating to help the retailers receive enterprise credit from microfinance institutions.

Pro-Invest will also provide supplemental non-financial services, such as training in business and financial

management, which will be customized to the needs of rural youth retail shop owners and delivered by partner

NGOs and via the MobiPOS platform.

This project will provide valuable insights into how value chain strengthening approaches can be developed

to serve rural youth. In addition, it will provide useful information concerning how to integrate technology

into rural youth support programs.

MicroCred (Tunisia) – RYEEP will support MicroCred, a newly established greenfield MFI in

Tunisia, in the design and development of Creations, the first small enterprise start-up loan

developed specifically for youth in Tunisia, with a focus on roll-out in rural areas. The

service will target start-up enterprises run by young people who are seeking financing in

agriculture and animal husbandry as well as those working within rural value chain linkages

(handcrafts, fruit and vegetables, clothing, etc.) In order to support its clients’ non-financial

skills, MicroCred will partner with CESED, a Tunisian non-governmental organization, to design, develop, and

deploy a package of business development services (BDS) in conjunction with the Creations product. The NFS

will be offered both pre and post-financing and will include concepts such as idea generation, business plan

development, and financial literacy, bookkeeping, and market access solutions.

The learning from this project will inform how best to serve rural start-up businesses through a combination

of financial and non-financial services. It will also provide information on the pros and cons of supporting

larger small enterprises as compared to microenterprises for rural youth.

2.3 RYEEP Learning Agenda – The Starting Point:

RYEEP’s point of departure for designing the pilots is the strong body of practices that youth-inclusive financial

services practitioners have developed to guide the design and delivery of financial and non-financial services for

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youth. These practices can be summed in the following principles for the delivery of inclusive financial services,

also known as the Emerging Guidelines in Youth-Inclusive Financial Services.5

1. Involve youth in market research and product development. Attention to the particularities of the

youth market and involvement of youth in product development processes may result is simple yet

critical changes to existing and new products and delivery channels.

2. Develop products and services that reflect the diversity of youth. The youth market contains sub-

segments related to age (legal age), life cycle stage (marital and parental status), gender, education,

employment status, and vulnerability. These differences should be taken into consideration in product

design and delivery.

3. Ensure that youth have safe and supportive spaces. Safe spaces help build youth’s confidence and

enable them to take advantage of opportunities. This may involve infrastructure considerations, delivery

mechanisms, and social networks.

4. Provide or link youth to complementary non-financial services. Non-financial services may include

mentoring, financial literacy, the cultivation of a savings culture, lifeskills training, and support in

livelihoods and workforce development.

5. Focus on core competencies by utilizing partnerships. Assess and complement institutional strengths

and weaknesses by collaborating with youth-serving organizations (YSOs), schools, training institutes,

and other entities, particularly in the provision of safe spaces and non-financial services.

6. Involve community. Involve the community—including family, schools, teachers, and other local

groups—to mutually reinforce and enhance the effectiveness of financial and non-financial services.

7. Establish institutional readiness. Ensure a strategic rationale for serving youth and establish

institutional readiness, including adaptable policies and appropriate staff capacity.

2.4 RYEEP Learning Topics Pilot project implementation under RYEEP will lead to learning around how these principles need to be adapted

for rural areas. In addition, Making Cents, IFAD and Silatech have decided to focus knowledge management

efforts on five learning topics of interest specifically to those serving rural youth.

Adapting and Developing Effective Financial Products for Rural Youth

Inspiration for effectively serving rural youth can be found in successful rural finance models for adults or youth-

inclusive financial service programs in urban areas. What are the key aspects of these products that need to be

adapted for successful rural environment delivery?

Determining Appropriate Level and Delivery for Supportive Non -Financial Services

5Making Cents International, December 2009

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Rural youth tend to be more poorly educated, have fewer livelihood opportunities, and are harder to reach.

What financial capability or livelihood development services should be provided in rural areas, who should

deliver them – financial institutions, NGOs or the government, and how?

Using Technology to Lower Costs and Provide Youth w ith Alternative Forms of Finance

Making the business case for providing financial services to rural youth is especially difficult considering youth’s

general tendency to save less and demand lower loan sizes, combined with the low population density and poor

infrastructure in rural areas. How can technology lower the cost of financial service delivery to youth, whether

through financial institutions or value chain actors?

Linking Products or Institutions to Facilitate Movement from Informal to Formal

Youth capacity to use financial services develops over time as they grow in experience and knowledge. While

informal financial services such as savings groups may be appropriate for youth starting out, how can these

services be linked to formal financial institutions to provide youth with the greater variety and sophistication of

formal financial services? Similarly, many youth begin informal income generating activities as their first foray

into business; how can financial or non-financial products encourage business growth and graduation from

informal to formal enterprise management?

Designing Innovative Approaches for Scaling Products in Rural Environments

Successful pilot projects can be scaled through the government – by policy changes or adoption of services by

government agencies, the market – by private sector companies or entrepreneurs seeing value in services and

offering them on a for-profit basis, or culture – when public awareness campaigns and behavior change

strategies become adopted by communities and new practices are propagated. Which scaling-up pathways are

appropriate for successful elements of RYEEP pilots and what strategies can be followed for expansion?67

6Muthoo, Ashwani, David Francis, and Oanh Nguyen. IFAD’s Capacity to Promote Innovation and Scaling Up: Corporate-level Evaluation. Rep. no. 2240. IFAD, June 2010. Web. 7 Cooley, Larry and Kohl, Richard. Scaling Up- From Vision to Large-scale Change; A Management Framework for Practitioners. MSI and the Macrarthur Foundation. March 2006

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3. Case Study: Al Amal Rural Expansion–Adapting successful urban products

for rural Yemen

3.1 Project Summary The overarching goal of the Al Amal Rural Expansion project in

Yemen is to increase employment and self-employment of rural

youth by increasing their access and ability to use financial

services, while simultaneously building their business

management skills.

This goal is broken into two supporting objectives:

Objective 1: Build the capacity of Al Amal to develop and deliver youth-inclusive financial services in rural Yemen to 6,000 youth or 30% of the total rural clients served.

Objective 2: Build the capacity of Al Amal to select and support partners to provide youth-inclusive non-financial services to 6,900 rural youth (30% of the target of 23,000).

Through RYEEP, Al Amal Microfinance Bank is adapting its urban

focused youth-inclusive microfinance approach to rural areas. Al

Amal is already a regional leader in youth-inclusive financial

service; as of December 31, 2014, it was serving 8,652 youth, or

over 22% of its overall portfolio countrywide. Al Amal has

achieved this goal by recognizing youth as a major target

segment from the institution’s inception, training staff on youth-

inclusive practices, and setting ambitious targets for serving

youth. Under RYEEP, the challenge for Al Amal is to maintain this youth-inclusive focus, while extending its reach

into difficult to serve rural areas. To do so, Al Amal established its institutional readiness by developing a rural

expansion strategy that explicitly included targets for youth. It then developed partnerships to support youth

service delivery – most notably with the Reyadah foundation, a newly formed training institute that could offer

essential supportive non-financial services including financial literacy, enterprise development, and technical

skills training. Finally, it elicited additional technical assistance to consider how technology can lower the costs

of service delivery overall, but especially to youth, and product development assistance to develop new rural

and youth-specific products.

Al Amal Rural Expansion

at a Glance

Geographic area: Yemen— Rural sections

of: Dhamar, Sanaa, Ibb, Taiz and Lahj

governorates

Local Implementers: Al Amal Microfinance

Bank, the Reyadah Foundation, local NGOs

Financial Service: Individual and group

based credit products, individual savings

products

Non-Financial Service: financial literacy,

enterprise management and technical-

oriented training

Impact-to-Date: 3,583 loans, 3,061 savings

accounts; 397 have being trained

Beneficiaries: 6,000 Rural Youth, aged 18-35

Duration: August 1, 2013 – February 19,

2016

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By project end, RYEEP will learn how its urban-designed

strategy must be adapted for rural youth, what financial and

non-financial services are necessary to successfully target

youth, and how other factors, such as technology and

partners can help to extend their services sustainably.

3.2 Target Beneficiaries

The population served under this project can be described

as follows:

Youth ages 18-35. Al Amal uses a definition of youth as

between the ages of 18-35, reflecting more traditional rural

practices where young people do not gain control over assets (including land) until a relatively late age.

Underemployment among this segment is widespread, estimated to reach between 60-70% among in rural

areas.

Geographic zones: The geographic areas of focus for the project are in the rural parts of Dhamar, Sanaa, Ibb,

Taiz and Lahj governorates. Al Amal is serving these areas through a combination of purely rural branches and

urban/peri-urban branches with rural outreach units.

Youth Livelihoods: Youth are involved in a variety of on and off-farm activities in these rural areas. The Market

study conducted by Al Amal Bank in the fall of 2014 identified youth as being very involved in the honey,

livestock, fishing, horticulture, and textile/weaving industries, as well as engaged in small businesses such as

motorcycle transport, trading, and traditional food production (e.g. cheese). While youth may have a primary

business, their income is diversified, generally derived from at least two sources.

Gender. Women’s livelihoods are constrained by traditions that restrict movement and the type of businesses

deemed suitable. Nonetheless, young rural women contribute significantly to household income and are

particularly involved in activities such as livestock raising, textiles/weaving, and traditional food production. Al

Amal seeks to target a minimum of 35% women in its clientele.

3.3 Financial Services Offered

Al Amal Bank is providing savings, general lending, and rural livelihood specific lending products under this

project. To date, Al Amal is only offering savings and general lending products; it plans to develop and deliver

rural livelihood specific products in 2015.

Savings: For savings, Al Amal is delivering its specialized youth savings product. This product was developed in

partnership with Silatech especially for youth and offers lower minimum balances and incentives to join, such as

a gift when youth client open their accounts and enrollment in lotteries. Al Amal has not changed any of the

product features for rural areas yet, though it is studying roll-out to determine if adaptations will be necessary.

Girls are a key target group of Al Amal's rural expansion

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General Lending: Al Amal offers five different products for adults and youth. These products are designed to

serve different purposes and types of collateral. While the features of these products are generally the same as

those offered in urban areas, there are differences in how young people are utilizing the products.

Group. Group lending provides relatively small loans to clients for business or household needs. Loans

are short-term, group-guaranteed, and increase in size over time with good repayment. In rural areas,

in order to decrease the cost of lending, the size of the group has been expanded from 5 to up to 25.

Considering the smaller loan size and group guarantee, the product has been attractive to youth,

comprising 28% of the youth portfolio.

Reayah (Welfare). The Reayah product is targeted at poor households who receive government support

payments. The loan sizes are small and the government payments are used as collateral. It has been

designed as a graduation product by Al Amal – used to test low-income borrowers for credit-worthiness,

with the idea that those who repay on time and have a successful business, can graduate to larger loan

products. To date, this product has been the most attractive for rural youth, with 56% of the rural youth

borrowers beginning with this product to date.

Individual. The individual loan product is Al Amal’s core enterprise lending product for adults. It offers

loans of up to 1,000,000 YR, but requires more stringent business plans and collaterals. To date, only

few rural youth have been able to obtain this loan, indicating their relative lack of assets and

opportunities. Once additional funding or donor guarantees are secured, Al Amal plans to begin delivery

of its specialized individual loan product for youth - the mashrou3i product – which has lower barriers

for collateral and smaller loan sizes.

Mawsimi (Seasonal). The Mawsimi loan is a consumption oriented product that helps active borrowers

to respond to cash-flow needs around holidays or the school season with an additional supplementary

loan. It has not been used significantly by rural youth to date, making up only 1.4% of the youth

portfolio. Due to the on-going conflict, Al Amal has decided to suspend this product because it does not

believe clients will be able to repay larger loan amounts.

Sharakat (Salary). The Sharakat loan product is for salaried employees and is generally used for

consumption purposes. Considering the under-employment of youth in rural areas, this product has not

been used significantly by rural youth to date.

Rural Livelihood Specific Loan Products: Based on its Rural Market Survey, Al Amal intends to develop value

chain specific products that include repayment terms based on the seasonality of income, and on the specific

characteristics of the income generating activity. Lending products for bee-keeping and livestock, two activities

which are popular among youth, are planned to be developed and launched in mid-2015.

The financial services offered by Al Amal that are most appropriate for youth are summarized below:

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Table 1 Financial Services Offered

Features Youth Savings Product Youth Lending Products (Mashrou3i)

To be offered by June 2015

General Group and Reayah

Products

Purpose Build assets for enterprise or consumption

Start micro enterprise Finance enterprises or consumption activities

Target Youth, ages 18-25 Youth, ages 18-35 Adults and Youth

Islamic Category

Mudaraba Murabaha, Ijarah (when applicable)

Murabaha

Amount Minimum Balance of YR250 - $1 USD

YR 30,000 to YR 250,000 ($140-$1,162)

Group: YR 50,000-200,000 Reayah: YR 35,000-100,000

Duration Demand deposit and term deposit options available

6 – 24 months Group: 6-24 months (longer terms as loans increase in size) Reayah: 12-24 months

Fees Small return based on profit of bank

1.2-2.4% per month, + .05% fees and 1% takaful (life insurance)

1.2-2.4% per month, + .01-.05% fees, and 1% takaful (life insurance)

Collateral None 1 co-signer and in some cases a group guarantee (group size 4-7 youth)

Group: Group Guarantee Reayah: Social Welfare card

Delivery Vehicle

Mobile Branches Rural Branches

Agents (disbursement/collection) Mobile Branches Rural Branches

Agents (disbursement/collection) Mobile Branches Rural Branches

Other For start-up businesses, a business plan is required and the loan is partially guaranteed by funding from Silatech

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Key Differences to Adult-focused Products

Lower minimum balance

Incentives to join, including gift upon account open and enrollment in lottery

Alternative IDs accepted (letter from municipality, marriage license) for clients who do not have national ID

Can be used for start-up businesses, as compared to adults where business must have been in operation for six months

Option for group guarantee for collateral

Alternative IDs accepted (letter from municipality, marriage license) for clients who do not have national ID

Adult and Youth products the same, however, lower loan sizes and easier collateral requirements favor youth utilization

3.4 Non-financial Services Offered

Al Amal believes that non-financial services are a crucial component of its rural expansion strategy, providing

knowledge and skills to youth that will help them to better understand the financial products offered, and to

manage enterprises more effectively, ensuring better repayment. To this end, Al Amal has partnered with the

Reyadah Foundation, a non-financial services provider based in Sanaa that Al Amal helped establish in 2013.

Through Reyadah, three types of non-financial services will be provided to youth: financial literacy, business

management training, and technical training.

Beekeeping

Al Amal’s rural market study explored prominent value chains to understand the income generating activities

that rural populations were engaged in and how they could best be supported with financial services. The study

indicated that the honey industry was a prominent one for youth, with almost three quarters of producers being

under the age of 35. In a survey of 82 producers, participants requested credit to purchase equipment, but also

training on production and business management techniques. Reyadah plans to contract local NGOs to provide

this technical training in conjunction with Al Amal’s lending activities.

Table 2 Non-financial Services Offered

Financial Literacy Training Business Management Training

Technical Training

Delivery Vehicle

Reyadah conducts TOT on financial literacy curriculum for local trainers who deliver it to youth

Reyadah conducts TOT on business management curriculum for local trainers who deliver it to youth

Reyadah contracts local technical experts to provide training

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Purpose Improve personal financial management skills and increase knowledge of financial products offered by Al Amal and other institutions

Improve business management skills of youth starting or expanding income generating activities

Improve specific technical skills of youth in promising value chains.

Curriculum Current Financial Literacy Curriculum, adapted for lower literacy and rural contexts

Adaptation of Build Your Business curriculum currently offered by Reyadah

New Training curriculum developed for specific technical skills offered

Topics Setting financial goals Budgeting Savings Financial Products

Market Studies Business Planning Costing/Pricing Marketing

Beekeeping Livestock raising Weaving Horticulture

Audience 4,000 Al Amal Clients 2,000 Rural Enterprise Managers

900 Youth in specific value chains

Duration 12 hours over 3 days 12 hours over 3 days Variable – between 1 session on 1 day and 10-15 sessions over 1-2 months

The rural non-financial services program just got underway in the fall of 2014. The Reyadah foundation trained

397 youth in four provinces on a twelve hour financial literacy course delivered over a four-day period. Reyadah

trained or certified trainers led the training and worked in close collaboration with local organizations to recruit

participants and host the events.

3.5 Project Results and Learning to Date The project has been implemented for approximately one and one half years at the time of publication, and the

project has already reached more than half of the 6,000 clients targeted. Results as of December 31, 2014

include:

RESULTS MAIN INDICATORS FOR YOUTH

3,583 Number of Active Loans

243 Value of Active Loans

3,061 Number of Active Saving Accounts

14 Value of Savings Portfolio

3,849 Number of Disbursed Loans

YER 332,821,150 (USD $1,545,920)8

Value of Disbursed Loans

YER 86,470 (USD $401.64)8

Average value of disbursed loans

42% % of loans to women

8 Converted to USD using 3/24/2015 rate $1 USD = 215.29 YER. Source: http://www.oanda.com/

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52% Average size of loans to women as % of those to men

397 Number of youth trained

13 Number of Branches

7 Number of Mobile Banks

6 Number of Agents

12 Number of Partner NGO(s)

In terms of individual products, the breakdown is as follows:

Outstanding Portfolio (USD)8

Outstanding Portfolio (YER)

Active Loans

Product

$188,178 40,512,857

1,010 Group

$662,210 142,567,230 2,022 Reayah

(guaranteed by welfare benefits)

$30,500.90 6,566,529 185 Individual

$20,902 4,500,000 50 Mawsimi (Seasonal)

$230,635 49,653,313 316 Sharakat (guaranteed by salaries)

$1,132,430 243,799,929 3,583 Total

During the initial implementation stage, Making Cents and Al Amal have gained learning in a few of the areas

covered by the RYEEP Learning Agenda. The section below describes learning to date or areas that the project

hopes to learn from over the life of the project.

Learning Topic 1: Financial Products that are Market-Based and Tailored to Rural Youth

Al Amal’s rural expansion strategy called for launching activities in rural areas with its products developed for

urban areas, with few adaptations. This strategy would allow Al Amal to gain experience in rural areas that in

conjunction with a detailed rural market study, it could use to adapt its Urban-developed products and to

develop new rural specific products. Due to delays in conducting the market study because of the increasing

political instability, Al Amal has continued with its urban products longer than planned. One might anticipate

that this would lead to problems with product uptake or repayment since the product features were not tailored

to the needs of the rural population and especially rural youth, who in principle, should be harder to serve.

In contrast, Al Amal has had no difficulty attracting rural youth for its products, nor securing repayment. In fact,

Al Amal is currently serving a larger percentage of youth in rural areas, than in urban (33% vs. 22%), and

repayment performance has been comparable, if not better in rural areas in comparison to urban areas.

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Al Amal believes that this strong performance in rural areas is related to four factors:

1. Pent-up Demand. Al Amal is the first financial institution to serve many of the rural areas where it is

currently active. As a result, there is a high demand for any formal financial services that offer a safe

place to save and credit for investment, whether specifically tailored to rural population needs or not.

2. Variety of Product offerings. Al Amal began operations in rural areas by offering 5 distinct loan products,

each of which could be used for a variety of consumption and investment activities. This variety allowed

youth to choose the products that mostly closely met their needs, even if the individual products were

not tailored for youth specifically. In this case, youth flocked to the Reayah and Group loans, which

offered low loan sizes and alternative collateral requirements.

3. Youth-Inclusive Mission and Training. While tailored products are important, just being open to serving

youth and training staff on techniques to engage youth is a critical foundation to work from. Serving

youth is part of Al Amal’s vision, so prospective youth clients found an institution friendly to their

applications, even if the product features were not “youth-specific.”

4. Partnerships. While not a youth specific strategy at first, Al Amal has worked hard to develop

partnerships with local organizations to pave its way into rural areas and to recruit new clients. These

organizations have given Al Amal credibility and encouraged more marginalized populations, including

youth, to open accounts and apply for funding.

Although Al Amal has seen success to date in attracting youth and securing repayment, it recognizes that

adjustments will need to be made to get beyond the first wave of demand and begin to serve additional young

people. Al Amal anticipates at least three adaptations being made to its product features to serve youth more

effectively in 2015. These include:

- Seasonal repayment. Al Amal’s market study reinforced the importance of seasonality on rural

household cash flows. In response, Al Amal is considering how to adjust its current loan products to

synchronize repayments with seasonal cash flows.

- Rural activity specific products. Economic opportunities for youth in rural areas extend beyond

common retail and transport businesses to those in livestock and honey. However, Al Amal does not

have lending products that respond to the investment needs and seasonality of income for these

business types. Al Amal is considering developing “investment” type products that will address these

opportunities and successfully engage additional youth.

- Youth specific individual products. In urban areas, Al Amal has tested a start-up loan for young people

called mashrou3a. The individual loan product addresses a major constraint for many young people –

start-up capital- and is guaranteed by co-developer Silatech to respond to the higher risk of this product.

Al Amal is awaiting results of its pilot of the mashrou3a product in urban areas before launching it in

rural ones.

Future iterations of this learning product will describe implementation and results of these product adaptations.

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Learning Topic 2: Delivery of Appropriate Supportive Non-Financial Services

To date, Al Amal has not implemented enough of its non-

financial strategy to develop conclusions about what works.

Based on the market research conducted in the fall of 2014, Al

Amal anticipates that training on financial literacy will raise

awareness about financial products and how to use them,

while business management practices and technical training

will help ensure business success. In 2015, Al Amal plans to

study the impact of its training as one means to evaluate their

effectiveness in this regard.

What has become clear to date however, is the importance of

partnerships. Al Amal has developed relationships with twelve

partner NGOs to help it deliver financial and non-financial

services. In terms of non-financial services, these partners have been instrumental in recruiting participants for

the financial literacy trainings and adapting material to the local context. Going forth, Al Amal plans to maintain

and expand these partnerships, training and/or contracting NGO staff to deliver services as a means to lower

costs, as well as improve effectiveness of the training.

Learning Topic 3: Technology for Cost-Reduction, Alternative Forms of Finance

While Al Amal has seen success to date in its outreach to rural populations, it continues to be challenged by the

relative cost. To date, Al Amal has found that the cost of delivering services in rural areas in almost double that

of urban ones, due to the lower population density and poor infrastructure. If Al Amal is to continue providing

services in rural areas to adults and youth, it will need to develop more cost-effective means of operating.

In February 2014, Making Cents organized a study tour for Al Amal staff to Kenya to learn from Equity Bank’s

experiences with rural and youth financial services provision. Equity is a leader in Kenya, and in Africa more

generally, for its success in using technology to lower costs as well as in engaging urban and rural youth. Based

on the trip, Al Amal management decided to pursue agent banking more quickly, reasoning that the large rural

network of exchange agents in Yemen and youth’s greater propensity for trying new technologies would enable

it to use agents as a cost-saving measure, while still maintaining quality service. By the end of 2014, Al Amal had

developed business relationships with 6 agents and was using them for loan disbursement and repayment. In

2015, Al Amal will compare the costs of using these agents, and research the customer experience with them,

to determine if this approach is feasible upon which to base their rural expansion overall and especially to youth.

Learning Topic 4: Linkages to Facilitate Informal to Formal

Al Amal is gaining insight into the question of formality and business growth in at least two ways:

Financial Literacy Training for Youth

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1. Using informal networks to provide formal financial services. Al Amal recognized in its rural strategy

that it needs to draw upon partnerships with NGOs and rural cooperatives to extend services into hard

to reach areas. One model that it will explore is developing relationships where these

NGOs/cooperatives can serve as “Rural Banks” that Al Amal provides wholesale loans to, which the

partner disburses on a retail basis. Experimenting in this way will provide insights into how informal

networks and partners can expand formal financial services to hard-to-reach youth. The different

channels Al Amal considers necessary for success are depicted in the graphic below:

2. Encouraging business growth through graduated products. Al Amal’s suite of products encourages

business growth by providing small loans with less rigorous collateral requirements, followed by larger

loan opportunities for good clients. In rural areas, the Reayah product is serving as this stepping-stone,

enabling youth people to get started with a small loan that is collateralized by welfare payments. Al

Amal will study how many of these clients are able to graduate to larger loans, and thus determine how

best to help young people grow their enterprises in rural areas.

Learning Topic 5: Strategies for Scaling Products in Rural Environments

Al Amal’s rural expansion strategy is based on the premise that it needs to focus equally on rural adults and

youth at the same time, rather than just on youth (or adults) alone, if it is to successfully expand into rural areas.

By focusing on this broad target clientele, it can saturate an area with services and keep the overall cost per

client lower than if it focused on a narrow target segment. Al Amal’s strategy is also predicated on using

partnerships for expansion – either to attract clients and gain credibility or to lower costs through agent

networks. As its rural expansion continues in 2015, Al Amal will learn more about the validity of these strategies

and implications for scaling up rural financial services provision for youth.

Funding through Al

Amal bank channels

Finance services

Non- Finance

Services

Funding through agents

and NGO partners

Saving

Payment of premiums

Social transfers

Finance services

Non- Finance Services

Bank

Rural community

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Conclusion Al Amal’s rural expansion has been designed as a viable means to extend formal financial services to a broad

spectrum of adults and youth. It also aims to generate learning around the appropriate mix of financial products,

the importance of non-financial services for rural finance provision, and how technology can effectively lower

the costs of rural finance. Initial results are promising, though much more will be known as Al Amal develops

new products and reaches break-even for its rural branches. This brief will be updated as results become known,

with a final version available in 2016.