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Home SAARC Finance Microcredit Operation Seminar Maldives

An Overview of Micro credit and SME financing activities in the Maldives

Country Paper for SAARC Finance seminar on Microcredit operations
21-23 Dec 2002, Dhaka, Bangladesh 
21 Dec 2002 

Presented By

  Mr. Hassan Abdullah, Manager,Bank of Maldives Plc.
Ms. Zulaikha Ismail, Officer Trainee, Maldives Monetary Authority

The Maldives is made up of 1190 islands, which are grouped into 26 natural atolls that together from a chain 820 km in length and 130km at the widest point set in an area of more than 90,000 square kilometers of the Indian Ocean. Of the 1190 islands 200 islands are inhabited. All are very small and only 33 inhabited islands have a land area of 1 square kilometer.

One of the major challenges that are facing Maldives has been to ensure that the benefits of growth and development are equitably shared between the nations' highly dispersed population.

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Since National Development on a planned basis in the Maldives was initiated in 1985, atoll development in particular has been given a very high priority in the National Development Plan. The first plan covering the period 1985-1987, and the subsequent documents stressed the need to reduce the disparity that has been existing between the capital Male' and that of the atolls. In Maldives the disadvantaged groups of people, namely those living in the atolls are synonymous with the poor, although there is no absolute poverty in the country as in the sub continent. Therefore any focus in the Atoll development in the Maldives could be regarded as a poverty alleviation focus in the national context. In Maldives poverty alleviation primarily means the reduction of regional disparities in living conditions since poverty problem in the country are primarily related to remoteness of islands and lack of services due to mainly sparse population. In addition to income, the governments definition's of poverty therefore include 11 other factors: access to electricity, transport, communication, education, health, infrastructure, potable drinking water, recreation facilities and selected consumer goods, the quality of housing and the natural environment, and the incidence of food security and malnutrition.

The overall economic development witnessed by the Maldives over the last two decades has been very impressive. However, during the recent years (1997 to 2000), the growth rate of Gross Domestic Product (GDP) has moderated to more sustainable levels. The average rate growth for the last four years has been approximately 6.8 percent, which is significantly higher compared to regional growth rates and the growth rates of the Least Developed Countries (LDC). The South Asian region witnessed a growth rate of 5.9 percent between 1997-2000 while the LDCs during the same period experienced a growth rate of 4.5 percent. 

The sustained growth in GDP was largely attributable to the expansions of the tourism sector (which contributes to over 70 percent of foreign exchange receipts of the country) and due to its spin offs in the sectors such as transport and communication. Tourism sector's contribution to the GDP is over 33 percent, while the contribution of the transport and communication sector were a little over 15 percent. The traditionally dominant fisheries sector's contribution to the GDP has been steadily declining in the recent years and stood at 6.0 percent in 2000. Construction sector, which has experienced a surge in the last decade, contributes to 3 to 4 percent of GDP while the manufacturing sector dominated largely by fish processing and garment industry contributes to about 9 percent of GDP.

The Loans from this account ranges from Rf 25 thousand to 7.6 million. Categories include agriculture, printing, embroidery and tailoring, launderette and dry cleaning, operation of clinics, filming, graphic designing, electrification, taxi service, repair and maintenance service centers.

Atoll Electrification Project is being carried out since 1999 with a revolving fund of Rf 10 million with the objective of electrifying smaller islands. As at June 2002,36 islands have been electrified under this project. Loans range from 120 thousand to 500 thousand with a service charge of 8 percent per annum.

The government channels credit to the fisheries sector through two schemes the first being the allocation of funding that is made for fishing boats. A total of about 200 loans have been provided for fishing boats (boats, mechanization etc) of which over150 were financed from external donor funds and about 60 out of Government budget. Outstanding number of borrowers stands at close to144. Financing of Rf 641,300 is currently provided for fishing boats constructed by Maldives Industrial Fishery Company (MIFCO). The financing term is 10 years with bi-monthly payments calculated as a hire purchase arrangement with title passing to the lessee upon full and final payment. The full cost of the boat is financed under the scheme. Since 1998, 60 boats have been financed at the request of Ministry of Fisheries Agriculture and Marine resources (MOFAMR) for a total cost of Rf35,7million. MoFT maintains the loan repayment records.

Credit has also been provided by MOFAMR for fish processing. By the end of 2001 from an allocation of Rf3 million, Rf2.19 million has been disbursed to 256 borrowers in 33 islands in 8 atolls. The loan size ceiling is Rf25,000 and loan term for borrowers is two years including a six-month grace period. The interest rate is 7 percent that includes the 6 percent charged by MoFT to MOFAMR and 1 percent administrative charge by MOFAMR. Loan disbursement is by cheques that are cashed in a BML branches. Loan repayments, in cash, are collected through the Island or Atoll Office.

Ministry of Womens Affairs and Social Security (MWASS) since March 2000 has allocated Rf1 million out of budget for micro credit to disadvantaged women with half of this money allocated to Male' and half outside Male'. By late 2001 loans of Rf 15 thousand each were made to 35 borrowers in Male' using up the full allocation. Loan allocation to women outside Male' are yet to be disbursed as few loan applications, according to MWASS, meet satisfactory standards. Loans are disbursed through the MWASS and loan repayments are collected by BML branches in Male and the Atolls.


The Development-Banking Cell (DBC) of the Bank of Maldives was established in June 1990. Ever since its inception, the DBC has played a pivotal role in providing and promoting development-banking activities targeted mainly to the Atolls. The bank is currently undertaking two major projects The Atolls Credit and Development Banking Project (ACDBP) and the Southern Atolls Development Project (SADP).

The Atolls Credit and Development Banking Project (ACDBP) is being carried out since 1990 with the objective of reducing the income disparity between and within the atolls and Male' by introducing development banking activities.  The total amount of the project fund is US$ 6million of which US$3 million is a loan from IFAD. The remaining 50 percent is financed by UNDP (US$389 thousand), the Bank of Maldives (Plc) Ltd. (US$1.6 million), Government of Maldives (US$506 thousand) and the beneficiaries (US$400 thousand).

The beneficiaries of the scheme are classified into two groups the primary target group and the secondary non-target group. The primary target group consists of :

Families of 6 persons within the income bracket of Rf 3000 per month, families of 7 persons within the income bracket of Rf 4000 per month and Female headed households. The secondary target group is being financed by the bank from the deposits mobilised by project branches.

The Southern Atolls Development Project (SADP) was initiated in 1995 with a loan of US$ 2.92million from IFAD with the objective of creating and expanding income generation and employment opportunities by expanding development-banking facilities. The current total project fund of US$8.1million comprise of contributions from IFAD (US$2.9million), OPEC (US$1.5million), UNDP (US$165 thousand), UNICEF (US$ 70 thousand), Government of Maldives (US$ 613 thousand), Bank of Maldives (US$ 1.64 million) and the beneficiaries (US$1.179 million).

Development projects were run in four Atolls under donor assistance since 1997. The first of these projects was the "Atoll Development for Sustainable Livelihood project" conducted in Shaviyani, Noonu, Vaavu and Laamu Atolls. Since 1997 three other projects supplemented the targeted Atolls namely "South Asian Poverty Alleviation Project" in Noonu Atoll, "Promoting Sustainable Human Development" in Vaavu Atoll and "Promoting Income Generation and Employment Creation" in Laamu Atoll.  The actual impact of these projects on the living standards of people in Atolls are not known as no proper assessment of the project has been done to date.

Atoll Development Funds (ADFs) has been established with the objective of enabling development activities to carry on in a sustainable manner after the completion of the above-mentioned programs funded by the Government, UNDP and IFAD. Currently the programs are on going in four Atolls: Noonu, Vaavu, Laamu and Shaviyani. In principle, ADFs are financed from funds remaining from a previous project, the community, and the Government in three equal portions. On completion, total ADF funding will be Rf2.4 million for Noonu Atoll, Rf1.0 million for Vaavu Atoll, Rf1.55 million for Laamu Atoll, and Rf3.05 million for Shaviyani Atoll: a total for the four atolls of Rf8 million of which Rf2.7 million will be from the Government budget. These funds are earmarked for credit to individual borrowers and for community-service utilities. Without donor support, Government is currently unable to extend ADFs to other atolls.

There is a wide disparity in the levels of income between Male' and the Atolls. Male' is the hub of economic activity in the country and most of the small and large businesses are centered around Male'. However, the government's recent policy of decentralization, the activities of the DBC of the BML and the policies of government geared towards creating better employment opportunities are increasingly helping to reduce the disparity in living standards and increasing income levels. However, much remains to be done to address poverty and income disparity issues.  The average level of per capita household income in the Maldives is about 24 Maldivian Rufiyaa per person per day, equivalent to approximately US$ 2 per person per day.

Within the 10 most populated atolls there are an estimated 25,000 households. According to a recent study on Micro finance in Atolls, based on lending under SADP and ADCBP there is a market potential for micro credit in the range of 15-20 percent of households which translates to over 3,750 to 5,000 borrowers in the 10 atolls. At present the SADP and the ADFs are serving over 1,600 establishments. This is about 30 percent of the market.  At an average loan outstanding of Rf18,000 , the unmet demand would be Rf 40 60 million and would lead to micro credit in aggregate being equal to about 5 percent of private sector claims in the banking sector.

Microfinance in the conventional sense has little applications in the Maldives mostly owing to the high setup up costs of any income generating activity. Regional success stories of microfinace schemes cannot be emulated in the country without substantial restructuring as any such scheme to operate successfully in the Maldives would involve high administrative and transaction costs as a result of the widely dispersed geographic nature of the archipelago.  Further, banking facilities are not developed in the outer Atolls. The Bank of Maldives Plc is the only bank that operates its branches outside Male. This has also resulted in an acute shortage of awareness of banking services. Therefore, building general public awareness and broadening the banking network should be and integral part of the efforts to create a conducive environment to nurture micro, small and medium enterprise (SME) financing.

If microfinance schemes are to be successful in the Maldives, the schemes have to be re-engineered in such a way that it is geared more towards financing small and medium enterprises (SMEs). These activities should also be particularly targeted to the areas and regions most in need of infrastructure and service development. In particular, infrastructure is crucial in generating more productive employment opportunities.