A proposed Islamic microfinance model for reducing unemployment rate in Yemen

Abstract

Although the efforts taken by successive governments and international and local NGOs to reduce the unemployment rate in Yemen, the unemployment rate has remained significantly high. On the other hand, although, the Islamic microfinance institutions (MFIs) in Yemen seem promising in addressing the problem of unemployment; they are still experiencing critical and various challenges that undermined the vital role of MFIs in combat unemployment rate. Thus, this study aimed to propose an integrated Islamic microfinance model for reducing the unemployment rate in Yemen. This integrated model includes financial resources namely waqf, zakat, and crowdfunding as well as Islamic microfinance institutions and micro-entrepreneurship as well. To achieve the objectives of this study, the qualitative and quantitative methods were used. Eleven experts from Islamic finance and Islamic microfinance were interviewed, and more than 360 questionnaires were distributed to clients of Islamic microfinance institutions in Sana'a city. This study has used structural equation modeling (SEM) as the core analysis method owing to the need for the analysis of the mediating effect. The findings of this study reveal that Islamic microfinance institutions have a significant impact on micro-entrepreneurs in Yemen and Micro-entrepreneurship has a significant impact on the unemployment rate in Yemen as well. It has also found that the Islamic micro takaful and entrepreneurship training are moderator variables between IMIFs and micro-entrepreneurship in Yemen. Additionally, this study has revealed that waqf, zakat, and crowdfunding have a positive effect in financing and developing the IMIFs to reduce the unemployment rate in Yemen. This study has recommended that the government, businessmen, and IMIFs should establish funds for waqf, zakat, and crowdfunding to finance IMIFs and, IMIFs also should establish a joint comprehensive company for Islamic micro-takaful for the clients of IMIFs. It has also suggested that IMIFs should establish units for micro-entrepreneurship training to train the clients and develop their needed skills to manage their projects.