Maldives, a South Asian country of 1,190 islands grouped in 26 atolls and spread over 90,000 square kilometers in the Indian Ocean, graduated to middle-income status in 2011.  After 30 years of presidency, it transitioned to a parliamentary democracy in 2005, and in 2008, had a new constitution ratified, paving the way for the first multi-party presidential elections. However, political instability, with frequent and contested presidential and parliamentary elections and public protests during administration changes, affected the business climate.

Although Maldives addressed its first-generation challenges in the provision of basic services, long-standing structural constraints have remained. These constraints include a small import-dependent economy with a narrow economic base and the high cost of inter-island transportation and infrastructure provision, creating regional disparities in access to economic opportunities outside the capital city of Male.  To promote economic diversification and inclusion, the government supported the development of micro, small, and medium-sized enterprises (MSMEs) that, until project processing in 2012, had operated on a small scale, including family-owned enterprises; engaged in retail trade; and remained largely unregistered.

Against this backdrop, the Asian Development Bank (ADB) approved a $5.57 million loan and a $4.45 million grant for the Inclusive Micro, Small, and Medium-Sized Enterprise Development Project in May 2012.   With a $10.3 million cofinancing loan from the Islamic Development Bank (IDB), the project aimed for a more inclusive and broad-based MSME sector, as impact; and MSME sector expansion and strengthening, as outcome.  It had three planned outputs (i) business support infrastructure built, (ii) access to finance for private sector MSMEs improved, and (iii) technologies for MSME development established.

At completion, the project fully or exceedingly achieved 12 of its 14 output targets, enabling it to substantially attain its intended outcome.  678 new women- and youth-engaged businesses were created.  Loans were provided to 628 MSMEs, of which 349 were owned by women and/or youth.  The Small and Medium Enterprise (SME) Act was ratified in April 2013.  Amendments to the Act to incorporate international standards in corporate governance, internal controls and audit, credit risk management, and disclosure and transparency, and gender and youth concerns, have been drafted and are set for submission to the Parliament by September 2019. 

The institutional, operational, infrastructural, and human resource capacities of the business development service centers (BDSCs) were strengthened in line with the SME Act requirements. BDSC operations were expanded to all the country’s seven provinces, with two additional BDSCs opened under the project. BSDC business development products and services were enlarged to 32, from a baseline of 10 in 2011.   Business incubator programs, including the government’s GetSet Scheme,  the IDB’s Line of Finance (LOF) facility, and ADB’s Women Enterprises Loan (WEL) provided support for product development, quality control on product standards, business management and skills development, and market research for value-chain MSMEs to 178 MSMEs, of which, 71 were youth-led and 66 were women-led.  WEL comprised phase II of the Line of Credit Facility (LCF) established under the preceding ADB-financed Private Sector Development Project (PSDP).

To share in the credit risk of financial institutions and reduce collateral requirements, the Credit Guarantee Unit was set up under the Maldives Monetary Authority (MMA).  Launch of the credit guarantee scheme followed in August 2016, providing Maldivian-owned MSMEs with guarantees to apply for loans between Rf100,000 (about $6,500) to Rf1,000,000 (about $65,000) with no collateral.  As of March 2018, 65 loan applications had been approved with a total value of Rf41 million (about $2.67 million), 90% of which was guaranteed by the MMA.

Prior on, under LCF phase 1, the project also provided $1.5 million to the Ministry of Finance and Treasury (MOFT) that relent the fund to the Bank of Maldives (BML) for commercial onlending to eligible MSMEs.  Launched in January 2014 and implemented until end-2017, LCF phase 1 was supplemented by $6 million from the IDB’s LOF.  Overall, ADB’s LCF, including WEL that was created in February 2018 to focus on promoting gender equality in MSME access to finance and developing stronger and more women-led MSMEs, benefited 164 MSMEs and IDB’s LOF supported 37 MSMEs.  It also strengthened women’s inclusion, by providing 58% of the 164 loans to women-led MSMEs, exceeding the 15% mandatory allocation for women set at project appraisal.

The Credit Information Bureau (CIB), established under PSDP as the central repository of borrower credit histories, was strengthened.  As of project completion, the CIB was ready to include the insurance and telecommunications companies, but set aside the plan at appraisal to also cover water utilities.  CIB institutional strengthening, along with greater awareness on the importance of good credit, triggered increases in credit registry and usage of CIB reports, reducing information asymmetry in Maldives’ MSME sector.  The establishment of an online security transaction registry was commenced but was stalled by the absence of legislation.  Use of information technology systems was promoted to improve the delivery of vital BDS and overcome barriers to markets and access to finance across the geographically dispersed Maldives islands.

Substantial output and outcome deliveries enabled the project to achieve its envisaged impact, facilitating the early attainment of its impact targets.  Although not solely attributable to the project, and strongly supported by the country’s overall economic growth, unemployment rate dropped to 6.1% in 2018 from 11.7% in 2010.  Unemployment reduction among women was bigger, from 13.8% in 2010 to 5.7% in 2018; while that for men declined from 10.4% in 2010 to 6.2% in 2018.  Similarly, the reduction in the proportion of employed population living below $1.9 a day ($1 a day absolute poverty line, adjusted for purchasing power parity) was greater, albeit marginally, among women.

The MOFT was the executing agency.  With each handling a different project component or subcomponent, the MMA, BML, and the Ministry of Economic Development, through their respective project management units, served as the project implementing agencies (IA).  The Maldives Internal Revenue Authority was designated as the fourth IA in September 2016, just three months before project closing.