Ensuring an enabling SME environment

The SME Development Finance Corporation (SDFC) holds heavy ground in strengthening the Maldives' entire SME industry. Even though the policies of SDFC is steered towards reaching out to as many SMEs and entrepreneurs through reduced interest rates and majority of its loans granted without collateral, the corporation bears high risk stakes along the way. The loans are directly deposited to customer accounts held in specified commercial banks and they collect repayments through direct debit according to pre-agreed terms.

SDFC acts in the interests of securing the SME sector, but it is vital to comprehend the sustainability of the institution, given the upbeat influence it brings to the economy. Ahmed Zeenad, Managing Director of SDFC highlights that its Non Performing Loan (NPL) rate stands at 6.8 percent at present. This is during a time when a moratorium has been granted last year across the entire loan portfolio. SDFC initiated a review of its loans at the beginning of 2021, where the results indicated that a majority of repayments have been delayed since most of the businesses rely on their revenue and business income for loan repayments — which have been affected due to the pandemic and which caused delays in most construction projects.

At present, SDFC is supported solely by the government through capital injections. Going forward, the corporation will be required to stand on its own feet in the long term, to continue its business processes without depending only on the government budget for funds. To guarantee repayment of disbursed funds, SDFC runs a rigid protocol to assure feasibility of businesses and its lending. The financial viability of businesses and returns on investment are firmly evaluated on practical grounds, while advising businesses on areas of weaknesses.

Zeenad’s advise to businesses and entrepreneurs who seek financial assistance through SDFC, is to conduct proper research on the practicality of their ideas and present sufficient evidence guaranteeing the required returns on investment. As much as the corporation is committed to supporting all types of businesses and ideas, assistance is only granted for the fair percent of businesses who succeed in providing copious results. The industry consists of a large percent of entrepreneurs with unique ideas and ambition but some fail to understand the business environment and its market trends. More often, the idea of a business is presented for loan requests, but lacks a whole or complete business plan.

To address this issue SMEs are encouraged, via the Business Centre Corporation (BCC) and SDFC, to seek assistance in transmuting an idea into a viable business plan. While most businesses require expertise and professional consultancy on their business affairs, many hesitate to share their ideas due to fears of confidentiality breaches. BCC is a state-owned enterprise established in 2017 with the mandate of supporting the development of the SME industry, along with SDFC. While SDFC provides financial assistance, BCC provides assistance in educating entrepreneurs on business processes, tax regulations and general conduct of businesses, as well as advising SMEs on options available at SDFC for financial support.

SDFC has contributed significantly to the development of the SME industry through their services. While it is still early to evaluate their impact on the economy since the recent inception, it is evident that a large percentage of SMEs have been granted access to financial and non-financial assistance over the last few years. The commitment of the government towards diversifying the economy through development of MSMEs should reflect positively on the country’s national GDP. Allowing local entrepreneurs to engage in production of local and handmade products could gradually lessen the heavy reliance on imports in the coming years. Therefore, it is imperative that institutions that support SMEs are sustained, with collective and persistent support from entrepreneurs and SMEs.