Yemen has a long history of economic fragility, characterized by limited diversification, dependence on oil exports, and a high poverty rate (WB, 2022). Prior to 2010, these vulnerabilities exposed the Yemeni economy to external shocks. The 2011 and subsequent 2015 events further exacerbated the situation, plunging Yemen into a deep economic crisis (WB, 2023). The conflict has had a devastating impact on Yemen's foreign exchange (FX) market and network. Disrupted exports coupled with a surge in imports due to humanitarian needs created a significant hard currency scarcity (UNCTAD, 2022). This scarcity, along with a dysfunctional central bank, led to hyperinflation and a sharp depreciation of the Yemeni Rial (YER) (IMF, 2023). The formal FX market channels became paralyzed, with currency exchange often happening through informal networks at highly volatile rates.
In response to the dire humanitarian situation, international aid agencies significantly increased their presence in Yemen starting in 2013 (UN OCHA, 2023). This influx of foreign currency, primarily in the form of humanitarian assistance, provided some temporary relief to the FX market. However, aid dependency raised concerns about long-term sustainability. Recognizing the limitations of purely humanitarian interventions, microfinance institutions (MFIs) emerged as potential agents for economic empowerment (Matin, 2016). By providing access to financial services for Yemeni entrepreneurs, MFIs aimed to stimulate economic activity, create jobs, and foster financial inclusion (Ledgerwood et al., 2013).
While the impact of humanitarian assistance on the Yemeni FX market has received some attention, a research gap exists regarding the specific effects of microfinance interventions, particularly those offered by AMB. This study seeks to address this gap by investigating how AMB's humanitarian and economic empowerment initiatives influence the stability and expansion of the FX market and network in Yemen. Meanwhile, this study endeavors to meticulously examine the multifaceted effects engendered by AMB's humanitarian and economic empowerment initiatives on the stability, expansion, and overall functionality of Yemen's FX market and network. This investigation will delve into how these initiatives implemented in a seven-year-long (2017-2023), encompassing both humanitarian emergency relief and entrepreneurial support programs, influence currency fluctuations, broaden access points for legitimate FX transactions, and potentially contribute to the revitalization of the formal FX market infrastructure within the strife-torn Yemeni economy.
Given the multifaceted nature of AMB's interventions, this study seeks to illuminate the precise influence these initiatives exert on both Yemen's FX market stability and network expansion. To elucidate the multifaceted contributions of AMB's interventions endeavoring to conduct perfect responses to the aforementioned questions, this study aims at the following:
- Investigating the influence of AMB’s humanitarian and economic empowerment initiatives on the stability of the fluctuating FX market.
- Exploring the impact of AMB’s humanitarian and economic empowerment initiatives on keeping the expansion of the FX network.
The study aims to examine the impact of Al-Amal Microfinance Bank's humanitarian and economic empowerment initiatives on the FX Market and Network in Yemen from 2017-2023. Using a mixed-methods research design including tools like text-based analysis as well as questionnaires in which their outcomes are analyzed by SPSS software, the study finds that AMB's initiatives have positively influenced the FX market by enhancing the foreign balance of payments and availability of local currency, contributing to boosting national GDP by promoting financial inclusion, job creation, and economic empowerment. Similarly, the findings illustrate the profound positive impact on the FX network by more FX network participants utilizing formal FX channels for humanitarian cash assistance projects, despite challenges in accessing foreign currency. AMB's initiatives also have facilitated transactions and expanded activity over the past 7 years. These efforts have reduced poverty, financial inequality, and promoted economic stability. However, there are potential risks and challenges associated with AMB's continued involvement in the FX market and network. This has contributed to a more stable FX market and network.