The Small and Micro Enterprises Development Unit ( SMED )

Is one of SFD's main programs. Its aim is to contribute to the development of small and micro enterprises in Yemen. The SMED Unit is the direct executive arm of the Social Fund for Development in economic development.

SMED's operations and interventions are based on six areas that enable it to focus on realistic objectives and promising initiatives:

        1. Financial services: financing of small and micro enterprises.

       2. Facilitate business development services (BDS).

        3. Institutional capacity building.

       4. Encouraging the sector and creating an enabling environment.

        5. Introducing new players in the microfinance industry.

        6. To become a powerhouse for small and micro finance expertise.

In line with its mission, SME's operations have evolved over the years to keep abreast with the continuing development of microfinance in Yemen. For instance, SMED had been directly training small and micro finance institutions and programs (MFIs), but as Yemen's microfinance industry has expanded, SMED has almost fully passed this activity to consultants, as well as the Yemen Microfinance Network it has established.

1. Financial Services:

    1.1 Financing Micro Enterprises

  According to the National Strategy for Small and Micro Enterprises, approved by the Council of Ministers in 2005, the Small and Micro Enterprises Development Unit has designated enterprises as follows:

                • Micro enterprises: those that occupy between one or two persons.

                • Small enterprises: those employing between 5 and 15 employees.

 Microfinance continues to represent the core business of SMED, absorbing most of its funding and other supporting services. Since its establishment in 1997, SMED has been working on the development of micro enterprises by establishing new microfinance programs and institutions, or by supporting existing ones, as well as strengthening their ability to deliver comprehensive and suitable financial services. SMED intervenes through loans and grants to support the small and micro finance sectors. The objective is to make eligible MF programs and institutions (MFIs) more competitive, expand and diversify their services to better serve the needs of the owners of small and micro enterprises. Accordingly, the provision of funds to MFI players involves a number of supportive interventions, which in turn are implemented either directly by the SMED Unit, or by third parties, such as consultants or providers of consulting services. These interventions may include:

                 • Provision of loans to MFIs on fair and equitable terms.

                 •  Provision of grants to cover establishment expenses, such as fixed assets, operating expenses and

                 development of manuals and automated systems.

                 • Capitalization of MFIs or contribute to their capital.

               • Encourage international investors to invest in the local small and microfinance sector.

 1.2 Financing of Small Enterprises

Small microfinance institutions continue to be provided with funding to sustain their lending activities targeted at develop small enterprises, and thus, form an integral part of Yemen's SME development strategy.

SMED's first attempt to develop the small sector goes back to 1999, when efforts were made with the Tadhamon International Islamic Bank to establish a window within its operations to finance small enterprises. These efforts were not successful. However, in June 2003, the SMED Unit established a partnership with the Small Enterprises Development Fund (SEDF) by providing significant technical support through specialized technical support providers, as well as financial support to sustain and expand its financing activities. As demand for financial services in Yemen continued to outstrip supply, the partnership with SEDF helped bridge the gap.

In order to achieve greater market coverage and access larger numbers of SME owners, SFD explores various ways to achieve this goal:

         a-  Encourage and support MFIs to scale up by lending to small enterprises.

         b- Urging the banking sector to provide adequate financial services by establishing microfinance

             programs as part of their banking operations.

          c- Support the establishment of new microfinance initiatives undertaken by the private sector,

             such as the establishment of Al-Kuraimi Islamic Microfinance Bank.

2. Non-financial services

 2.1 Business Development Service (BDS)

The financing of business development services consists in providing a variety of non-financial services to owners of small and micro enterprises in order to improve their efficiency and profitability. Such services may include professional and managerial training, marketing, quality improvement services, and other value-added services.

A large-scale survey of Yemen's labor force was conducted in 2000. It covered studying the problems and needs of the small and micro enterprises sector. Among other things, the survey showed a great need for business development services. Based on the results obtained , SMED conducted an additional study in 2004 to identify the types of services needed by the sector, potential providers of such services, and ways and means of delivery. The study also recommended the establishment of a specialized agency for the purpose.

The Social Fund for Development (SFD) established in 2005 the Small and Microenterprise Development Agency (SMEPS) to facilitate the provision of non-financial services to owners of small and micro enterprises, and to conduct studies on the two sectors. Since its establishment, SMEPS has carried out many activities targeted at small and micro enterprises through special programs aimed at increasing operational efficiency and quality of production, level of expertise and marketing outlets, as well as other activities to protect and promote the sector. The Agency has since grown to include 3 branches spread over Taiz, Aden, and Mukalla, thus covering most of the country, and to include a large cadre of qualified professionals.

2.2 Institutional capacity building

Since the establishment of SMED in 1997, institutional capacity building has been an integral part and the cornerstone of the SME intervention strategy to support the sector. Institutional capacity building activities aim at building strong and sustainable microfinance institutions, capable of serving the needs of small and micro enterprises in a sustainable and efficient manner.

SMED provides technical support for the purpose of building the internal work systems in MFIs in order to contribute to the strengthening of their the capacity to deliver their services, either directly through the unit using local, regional, and international consultants, or through strategic regional and international service providers, such as advisory firms, and financial and development institutions.

The SMED Unit has been quite active in developing manual and computerized systems, as part of its institutional capacity building interventions. Some important examples are the development of the Loan Tracking System (Maeen), the Computerized Accounting and Human Resources Systems, introducing financial reporting systems based on best practice, in addition to designing practical and training manuals. In addition, SMED has designed and developed the widely used Credit Bureau. This web-based system prevents the repetition of clients among small and microfinance institutions and banks across Yemen.

There are other examples of SMED contributions in this regard, such as direct grants to cover establishment expenses and the purchase of fixed assets, in addition to other miscellaneous purposes such as training and procurement of software systems.

Training constitutes an important part of SME's activities as it has a direct impact on the performance and expansion of microfinance programs, institutions and banks. The goal remains that of creating a broad base of small and microfinance practitioners endowed with the skills MFIs need and can benefit from. Training has been carried out in several forms, such as:

          a) Training courses for a week or less that cover a number of areas, such as financial analysis, human

              resources management, risk management, etc.

          b) On-the-job training conducted at the premises of MFIs, where practical training is provided by small

              and in micro finance practitioners.

          c) Training workshops aimed at raising the personal skills of practitioners in the sector.

          d) Reciprocal visits between programs and institutions to learn useful experiences.

          e) Establishing training halls in some small and microfinance programs and institutions.

          f) Establishment of the Yemen Microfinance Network.

In order to increase and improve the provision of training services, SMED established in cooperation with the United Nations Development Program (UNDP) the Yemen Microfinance Network (YMN) in August 2009. This independent network is supervised by a Board of Directors. The network carries out all the functions of SMED regarding training. In addition, the YMN is building a base of small and micro finance practitioners that benefit the programs, institutions and banks working in the sector, it carries out market studies, works in research and development, and promotes and advocates for the sector.

 3.2 Promotion, sector advocacy, and creation of an enabling environment

Promoting and defending the microfinance sector, and creating an enabling environment are key issues SMED is concerned with. SMED has made great efforts in drawing the attention of the public, the government, and the state towards this promising sector. In this regard, SMED has organized workshops, meetings and conferences for representatives from the government, businessmen, representatives of the private sector, and development organizations and donors, as well.

In order to promote the SME sector, SMED has also established some activities aimed at attracting the general public, such as the "Small and Micro Enterprises Days", and other similar events held in several cities in Yemen. These events have included small and micro finance programs, institutions and banks, and their clients, as well as some non-governmental organizations, all of which have increased the attention of public the, and created a positive impression on the development of the local SME sector. Since 2004, SMED has held this event once or twice a year, with invitations extended to the Prime Minister and other public figures. The promotional efforts of SMED have also been carried out on TV and radio, in newspapers and magazines, and through interviews to the media. In addition, the SMED website, the printing of brochures contribute to the promotion of the SME sector among the public.

Among the notable activities undertaken by SMED has been the hosting of the 4th Annual Sanabel Conference in 2007 in Yemen. SMED assisted in hosting and organizing the event, which was attended by major international and regional organizations. The hosting of the conference gave Yemen recognition, and the opportunity to be on the map of microfinance development in the Middle East. As a result, the event attracted the attention in the development of the SME sector in Yemen, and support from donors, as well as regional and international organizations.

Helping improve the legal environment for the SME sector has remained an area of ​​interest for SMED, producing tangible results. SMED has been active in helping regulate the small and micro finance market. As a result of the efforts made by SMED, the Central Bank of Yemen (CBY) has taken interest in supporting the SME financial sector by playing a supervisory role towards SME programs, institutions and banks. Also, thanks to the technical support provided by the German International Cooperation Organizations (GIZ), the German International Development Bank (KfW), and the International Finance Corporation (IFC), the Central Bank of Yemen established in 2009 a unit to supervise small and micro finance banks, and provided extensive training to a number of central bank employees to supervise and audit these MF banks.