The development of MSMEs is pivotal in creating a resilient and diverse economy while generating employment opportunities in the outer islands. The industry has been long neglected during the past years, until the Solih administration recognised the potential of the Micro, Small and Medium Enterprises in developing the Maldivian economy.
Policy reforms brought by the government has actively moved to providing SMEs with subsidies in creating an enabling business environment, establishing a vested institution and developing human resources for the development of SMEs within the food security sector as well as creating opportunities for SME participation in the three main industries through formulation of policies. The government is also focusing on providing technological capacity for SMEs to expedite the growth and development of the economy.
While there are significant strategies set out by the government to develop the sector, several issues remain unaddressed. Access to finance and the cost of finance has been the main challenges faced by SMEs in the Maldivian business environment. Mainly due to the fact that Micro and Small enterprises pose difficulties in attaining loans due to limitations in placing collateral.
The SME Development Finance Corporation (SDFC) was formed as a champion for the Maldives’ SMEs. Since its inception in 2019, SDFC has gained substantial ground, by having provided more than MVR500 million in financing to MSMEs across the nation. The foundation has now been laid for the MSME sector, which contributes to a large percentage of the country’s economic growth, to bridge the financial gap and to drive a robust and resilient economy. SDFC currently offers six financial products to five different sectors including Local Tourism, Agriculture, Manufacturing, Information Communications Technology and Fisheries.
Ahmed Zeenad, Managing Director of SDFC, sat down with the Maldives Financial Review to talk about the positive impact, and the important role the Corporation is playing in the development of the SMEs. Zeenad, with over 10 years of experience in the banking and finance sector, beginning his career at Maldives Finance Leasing Company (MFLC) as an Accountant in 2006 and later having worked at Bank of Maldives, has been leading this critical institution. He holds a Master of Finance from Curtin University Australia, and is currently pursuing the Chartered Bankers’ qualification from the Asian Institute of Chartered Bankers while leading the SME Development Finance Corporation (SDFC).
According to Zeenad, up until today and since its establishment, SDFC has approved 765 loans — out of which 536 loans have disbursed a total MVR524 million out of the approved total of MVR961 million. The Interest rates are determined by the risk assessment of the projects, yet never higher than 9.5 percent. The average interest rates of projects are between four and six percent.
The Corporation provides loans of up to MVR1 million without collateral to provide access to finance for micro and small enterprises. SDFC's Fashaa Viyafaari loans can offer up to MVR2 million — with amounts exceeding MVR1 million requiring collateral — for startup businesses to raise finance during their initial stage. This is the corporation's most popular product with 252 loans loans having currently been approved.
The Financial products offered by SDFC range from raising finance to Local tourism – Rashu Fathuru, Project Financing and raising working Capital – Viyafaari Ehee, Capital requirements for businesses – Harumudhaa, Financing for Business expansions – Viyafaari Tharaggee, startup capital – Fashaa Viyafaari and financing for agricultural projects – Dhanduveri Nafaa.
SDFC played a crucial role in supporting MSMEs during the COVID-19 pandemic — their initial response prompted other financial institutions to follow suit and offer loan, and loan relief, assistance. Since early 2020 the whole country has been recovering from the effects of the global COVID-19 pandemic. It is evident that the MSME sector required serious support; more so than ever before. Hence, under the government’s COVID-19 Relief Initiative, SDFC along with Ministry of Finance announced its COVID Viyafaari Ehee loan in April 2020 with a six percent interest rate, to support and retain the affected SMEs and self-employed citizens.
In the same month, the Corporation offered relief loans for Media companies, at four percent interest with a repayment duration of six years. The eligibility criteria of COVID-19 relief loans included prohibition from terminating local employees during the period of loan repayment indicating a high priority given to sustainability of business and employment of locals. In 2020, a six month moratorium was given across the loan portfolio which was further extended to an additional four months.
Due to the recent surge of the COVID-19 in the country, and having SMEs impacted due to further restrictions imposed, Ministry of Finance with the support of SDFC is again providing further assistance to SMEs as new COVID-19 relief loans – COVID-19 Economic stimulus loan.
Under the most recent scheme, Viyafaari Dhirun Loan will be provided to SMEs in collaboration with the Government of Maldives to facilitate the sustainable development of SMEs and to overcome the financial constraints faced due to the pandemic.
The three packages offered under this loan include:
- Package 1: Working Capital
- Package 2: Completion of on-going projects
- Package 3: Business sustainability & Diversification & non-finance consultancy
Some of the key features of the loans being:
- Loan amount up to MVR 1,000,000
- Interest rates of six percent
- Repayment within five to eight years
- Grace period between one to two years
- Equity requirement only for business diversification
The new loan scheme will be open for applications starting 1 July 2021.
Zeenad is confident that SDFC can be the catalyst that finally supercharges the nation’s SME potential. Even though the pandemic may have dampened initial plans to take even larger strides it also provides an opportunity for SDFC to put its resources, and underlying philosophy, to work in the most practical manner possible. Whereas all previous administrations have recognised the importance of MSMEs, the actions and resources applied have been haphazard at best. With SDFC now a reality, and the resources it can bring to bear, Zeenad is confident that said resources will be applied for the benefit of MSMEs as they are needed, when they are needed, with a speed and dexterity that has been absent in the past.