43566-013: Inclusive Micro, Small, and Medium-Sized Enterprise Development Project

Project Data Sheet (PDS): Details


The Asian Development Bank initiated the Private Sector Development Project (PSDP) loan in 2008 which was intended to develop and expand the micro-, small-, and medium-sized enterprise (MSME) subsector leading to broad-based, private sector-led, and sustainable inclusive growth. Being an ADB initiative, MSME development was a part of the development strategy for Maldives under the 7th National Plan 2006-2010. The impact of the project is expected to be inclusive and broad-based MSME sector. The outcome of the project will be a further expanded and strengthened MSME sector. For this purpose, the MSMEDP will focus on enhancing the business environment and support infrastructure for doing business with better knowledge, greater access to financing, and expanded business opportunities for MSMEs. The project has three components. The first component of MSMEDP will increase MSME access to business development services and support institutional capacity building for Business Development Services Centers (BDSCs) by (i) expanding BDSCs geographical coverage to all seven provinces within the country; (ii) introducing new business development services (BDS) including business incubator programs offered by the BDSCs, including institutionalized support in creating and enforcing market linkages; and (iii) strengthening the institutional, infrastructural, and human resource capacity of an expanded network of BDSCs to better support BDS demand needs of MSMEs. This component will also support energy sector linkages to value chain business opportunities having potential for MSME participation. The second component will improve MSMEs access to finance through (i) additional a line of credit facility (LCF) to meet with a huge credit demand from MSME sector, (ii) extension of credit information bureau to improve information quality and reduce credit risk, and (iii) establishment of secured transaction registry providing database information on fixed and movable assets. In line with previous PSDP implementation, information communication technology (ICT) will be managed by Bank of Maldives (BML) to promote MSME by providing them with financing for investment. The eligibility criteria for such financing includes (i) MSMEs which are registered in the MSME database; (ii) MSME activities focus on target clusters as per government policy (agricultural commercialization, fishery processing, handicrafts, and tourism-related activities which are environment impact neutral activities), and special emphasis will be given to non-traditional sectors such as ICT and renewable energy project (e.g. solar panel citizen service centers); and (iii) the MSME has adequate cash flow or enterprise budget as well as collateral. BML will undertake an independent credit risk assessment for proposals to determine if they meet the lending criteria agreed among the government, ADB, and BML. If the credit risk assessment is satisfactory, BML will approve subloans and execute an onlending agreement. Onlending agreements will be signed between BML and the subborrower on terms and conditions, as agreed among the government, ADB, and BML. The maximum sub-loan size for individual applicants will be local currency equivalent to $80,000 and the anticipated average sub-loan size is local currency equivalent to $40,000. It is expected that BML will provide around 200 MSMEs with subloans under LCF. Any deviation will be subject to ADB prior approval. The terms of lending will be on a commercial basis at the prevailing market rates of interest and tenor, reflecting costs of raising such funds locally and guaranteeing adequate spread of interest rates for BML to cover transaction costs and risks. MSMEDP needs to be classified based on its minimum or no environmental impact (as category FI treated as C). An eligibility criteria will be further developed in the LCF guidelines to ensure that the qualified MSME subproject shall be for activities that (i) are not included in the list of prohibited investment activities set out in Appendix 5 of the Safeguard Policy Statement (SPS) (2009); and (ii) have minimal or no adverse environmental impacts in accordance with ADB's SPS, and in compliance with the laws and regulations of the Republic of Maldives. Given protection of the environment is critical for the Maldives to maintain its environment resources for tourism industry, Maldives environment protection rules and regulations belong to high standards. The third component will facilitate and enable use of information, communications and technology (ICT) to promote information and knowledge sharing between MSMEs and the government; and implementation of a pilot ICT project to (i) demonstrate the use of ICT and viability of solar energy as a cost effective energy option; (ii) creation of a platform for delivery of e-governance services such as e-commerce, e-banking, and online submission of government taxes through citizen service centers; and (iii) create revenue stream for BDSCs through a public private partnership model, with a view to grow their economic contribution to the gross domestic product. The proposed Inclusive MSME Development Project will promote economic and financial inclusion in the Maldives by enhancing economic activities including those in the remote islands through more opportunities and access to finance for MSMEs which will thereby contribute to private sector development and overall growth.

Project Rationale and Linkage to Country/Regional Strategy

The Maldives has faced a number of important challenges over the past 10 years which has had a severe impact on the economy. In December 2004, the Maldives faced the ravages of the tsunami which destroyed, in relative terms, a higher share of natural infrastructure than any of the other stricken economies. In 2007, the country was mired in its own fiscal crisis linked to excessive spending and acute structural distortions in the economy which was further compounded by the slowdown in tourism following the global crisis. In 2008, the country managed a successful transition from over 30 years which, in the interim and given the resulting uncertainty, led to capital outflow and limited investment in the economy. While much effort has focused on rebuilding the economy, the government's effort is now more concentrated on the pursuit of more inclusive growth that addresses some more pressing shortcomings. These include the lack of economic opportunities outside of Male and the skewed concentration of enclave economic activity centered in the tourism resorts industry. Political, administrative, and economic decentralization has been pursued by the government to address these shortcomings. Greater availability of credit is an important platform to promote financial inclusion and more inclusive growth for engendering economic and employment opportunities. The Maldives has an overall unemployment level of 14.5% (146th among 200 countries), and the level of youth unemployment is even higher at around 25%. Income disparities between Mal? and the atolls are large and increasing. The Gini coefficient has remained almost constant over time at around 0.4, which is notably higher than those in neighboring countries. Over time inequality between Mal? and the atolls has continued to increase. MSME development has been identified as one of the key solutions towards fostering greater economic inclusion. Access to finance has been continuously raised as the most significant issue preventing the promotion and development of MSMEs. As part of ADB s earlier effort to support inclusive growth through private sector development, a Technical Assistance Project Loan for the Private Sector Development Project (PSDP) was approved in 2008 to develop and expand the MSME sector in the Maldives.


Inclusive and broad-based economic growth

Project Outcome

Description of Outcome

Enhanced business environment and support infrastructure for inclusive MSME

Implementation Progress

Description of Project Outputs

Strengthened business support infrastructure, including BDS Bolstering of well-designed LCF and establishment of CGS Strengthening of credit information bureau and introduction of centralized (movable and fixed) asset registry system; Strengthening the legal and institutional framework for MSME development. Enhancing the capacity of women micro- and small entrepreneurs

Status of Operation/Construction or Implementation Progress

-Line of Credit Facility officially launged in January 2014, full disbursement expected by end 2015 -Two business development service centers (BDSCs) in North and South have been operating since August 2014. Business start-up trainings have started. Iinterviews being conducted to engage staff for the four additional BDSCs, operations expected to commence in Q2 / 2015 - Legal and operational consultants to make Credit Information Bureau truly operational have commenced services. Contracting of IT firm for CIB reconfirguation to be held off until CIB law adoption is more predictable -Establishment of central registry of movable assets for the Secured Transaction Regime (STR), is contingent upon appproval of mortgage bill. Technical evaluation currently on hold until MMA makes final decision regarding international central registry project manager. -Audit firm contracted in February 2015. Submission of audit reports expected before June 2015. -Main program management consulting firm contracted in March 2015 -Consultants for BOLI enhancement contracted, work to commence end March 2015

Safeguard Categories

Environment: FI
Involuntary Resettlement: FI-C
Indigenous Peoples: FI

Summary of Environmental and Social Aspects

Environmental Aspect

FI treated as C.

Involuntary Resettlement

FI treated as C.

Indigenous Peoples

FI treated as C.

Stakeholder Communication, Participation and Consultation

During Project Design

The project will help develop an enabling environment for MSMEs and thus create more business opportunities for MSME in the provinces which leads to employment creation and poverty reduction.

During Project Implementation

Related stakeholders' participation and consultation will be ensured during project implementation.


Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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