A Journey Through Significant Developments in Maldives’ Financial Sector

Written by: Abdul Haleem Abdul Latheef

The Maldivian economy first started to take a more structured form during the 1950s. This was when government-led economic planning started to take shape in the Maldives. The expansion of trade, influx of foreign exchange, remittance from Addu Atoll to Male’ contributed to the formation of private capital as well as increases in government revenue.

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In 1974, with the arrival of the country’s first foreign bank, the ‘State Bank of India’ (SBI), the Maldives economy became further integrated with the rest of the world. SBI’s entry is largely regarded as the origin of modern banking services within the country. In 1981, six years after the introduction of banking services, the country’s first central bank, the ‘Maldives Monetary Authority’ (MMA) was formed. In 1985, 11 years after the introduction of banking, the first insurance company was established by the state owned entity, ‘State Trading Organisation’ (STO) in the form of a subsidiary by the name of ‘Allied Insurance Company’ (Allied).

Further developments in the financial sector took place during 2000s. In 2001, the first finance company was established in the name of ‘Maldives Finance Leasing Company’ (MFLC). Similarly in 2004, the first specialist mortgage finance company was set up named ‘Housing Development Finance Corporation’ (HDFC), with backing from the ‘International Finance Corporation’ (IFC), the ‘Asian Development Bank’ (ADB) and HDFC, India.

32 years post introduction of banking services, saw the emergence of capital market institutions through out the country. In 2006, the ‘Maldives Securities Act’ came into force, leading to the establishment of ‘Capital Market Development Authority’ (CMDA). Following the Act, the ‘Maldives Stock Exchange’ (MSE), ‘Maldives Securities Depository’ (MSD), and market intermediaries such as stockbrokers came into existence.

During 2016, CMDA in its role as regulator for security markets, issued the much anticipated ‘Regulations on Fund Management’, which opened the door for establishing businesses in professional money management. In 2009, the Maldives established its first funded pension scheme, the ‘Maldives Retirement Pension Scheme’ (MRPS).

In 2011 Islamic banking was introduced to the Maldives when the ‘Maldives Islamic Bank’ (MIB) with the backing of the ‘Islamic Corporation for the Development of the Private Sector’ (ICD), a multilateral development financial institution forming part of the ‘Islamic Development Bank’ (IsDB) Group, opened its business operations. The same year, MMA contributed to the developed the country’s payment system with the introduction of the ‘Real Time Gross Settlement System’ (RTGS). Following suit in 2017, MMA introduced an electronic clearing system with the launch of the ‘Automatic Clearing House’ (ACH).

Successively in 2017, with the aim of strengthening the country’s debt repayment capacity and maintaining its credit rating in sovereign bonds, a ‘Sovereign Wealth Fund’ (SWF) was established. Since then, the government has been allocating funds in the form of transfers from its budget to the SWF.

In 2016, the Maldives government securities received its first international rating from ‘Fitch Rating’, paving way for international listing of sovereign debt. The first government sovereign bond sale took place in 2017 with the sale of the USD 250 million at 7% fixed coupon 5-year maturity conventional bond which listed in the ‘Singapore Stock Exchange’. A second bond was issued in the same year valued at USD 100 million at 5.5% fixed coupon for 5-year maturity listed in the ‘Abu Dhabi Stock Exchange’, privately placed with the ‘Abu Dhabi Fund for Development’.

Although over four and half decades have gone by with the introduction of the Maldivian financial sector, access to capital at reasonable cost is still an uphill battle for majority businesses throughout the country and bank deposits remain as the only viable form of savings. In fact, World Bank’s Doing Business Report (2020) state that getting credit (34), protecting minority investors (32), and resolving insolvency (33) as the least performing indicators for the country. Further modernisation of the country’s financial system would be crucial for the county’s economic and social development.

About the author: Abdul Haleem Abdul Latheef is the Chief Investment Officer of the First National Finance Corporation. He started his career as an academic in 2000 and he worked for the Bank of Maldives as Deputy CFO, MCB (Maldives) as Head of Corporate Banking, for Solarelle Insurance as Deputy CEO, and as CFO of the National Pension Fund. He is also the current President of Maldives Red Crescent and a Board Member of the National Pension Fund. 

Article originally published on the First National Finance Corporation website.

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