ADB to Help Maldives Cut Rising Inequality by Expanding Small Business Sector

MANILA, PHILIPPINES – The Asian Development Bank (ADB) is providing fresh assistance to the Government of the Maldives to build up the micro, small, and medium-sized enterprises (MSME) sector in a bid to bring more people into the economy and to reduce growing income gaps between the capital Malé and outer atolls.

A loan of almost $5.57 million equivalent and a grant of up to $4.45 million for the Inclusive Micro, Small, and Medium-Sized Enterprise Development Project will be used to extend credit, strengthen business development service centers, and provide other critical support for the sector. The new initiative will build on an earlier ADB-assisted Private Sector Development Project, which helped start up 55 new businesses and expanded the operations of about 60 others engaged in fisheries, tourism, and handicrafts.

“The Maldives suffers from high levels of unemployment, especially amongst young people, and there are widening income disparities and inequalities between Malé and other atolls,” said Kyung-Nam Shin, Senior Financial Sector Economist in ADB’s South Asia Department. “This new initiative will help meet the growing demand for credit, and by broadening the geographic reach of business development centers and offering new products and training, it will give more Maldivians the chance to benefit from entrepreneurship.”

Unmet demand for credit for MSME is estimated at between $15 million and $30 million. The project will fund a new line of credit totaling $8.5 million, with ADB contributing $1.5 million and Islamic Development Bank $7.0 million. A secured transaction registry will be set up to allow businesses to access credit using their moveable assets as collateral. Business development service centers, which were first established under the earlier project, will expand their coverage to all seven provinces in the sparsely populated archipelago of more than 1,190 islands.

To attract more women into the sector, a portion of the line of credit will be set aside for them, and marketable skills programs will be developed, tailored to their specific needs. Two business incubator programs in the north and south of the country will be established to help would-be entrepreneurs. The project will also lay the groundwork for a credit guarantee scheme to ease access to finance for enterprises without sufficient collateral, and provide capacity building support and assistance to develop the legal framework for MSME.

ADB’s finance will come from its concessional Asian Development Fund, with the loan having a 32-year term. The project will be implemented over four years with an expected completion date of June 2016.