Maldives is a famous tourist destination that is unique not only geographically, but it is also a 100% Muslim country that has a homogenous language and culture across the whole country that consists of 1,190 small islands.
Though the economy and the financial landscape of the country is predominated by conventional financing methods and ideas, since the formation of the first Islamic bank of the country, Maldives Islamic Bank in 2011, the development of Islamic finance has grown exponentially. Since then, the country has witnessed a rapid and remarkable growth in Islamic finance that is worth studying. The year 2015 can be considered as a significant year that has brought the importance of Islamic finance in Maldives to the limelight. The largest national bank, previously conventional, introduced Islamic banking and for the very first time in the history of the country, the vice-president of the country inaugurated the special Islamic finance scheme for micro, small and medium enterprises. These two events alone prove that Islamic finance is an essential concept in the country today that is fully backed by the government.
Review of 2015
The year 2015 brought new players and innovative products to the market. In the month of January, the biggest conventional bank in the country which is also the national bank, introduced Islamic banking. However, the initial products offered are only deposit products. In the same month, Maldives Hajj Corporation invested in the oil business by buying a paper issued by State Trading Organization. In February, the deputy managing director of Housing Development Corporation (HDC) announced the formation of its Shariah Advisory Committee that will Islamize conventional loans into Islamic products.
In March, the first and the only fully-fledged Islamic bank in the country, Maldives Islamic Bank, introduced internet banking through ‘Faisa net’. The introduction of internet banking gave opportunities for customers of the bank in other islands except for Male’ and Addu City to engage in more transactions without being physically present at the bank. In April, Housing Development Finance Corporation, the only specialized housing mortgaged financer in the country, announced that the financing rate for Islamic products and conventional products offered by the company would be made lower by 50bps than the existing rate and the tenure of the facilities has been extended from 15 years to 20 years. In the same month, Maldives Transport and Contracting Company introduced a Shariah compliant engine financing scheme.
In May, a special Takaful package for Umrah and Hajj was introduced by Allied Ayady Takaful in affiliation with Maldives Hajj Corporation. The scheme was introduced by the first lady of the country, Fathimath Ibrahim. In the same month, a Saudi company, Al Huzam Management Company, announced that it is going to carry out a feasibility study in Maldives to determine whether it is feasible to open an Islamic resort. In June, the Addu City council announced that it intends to build and develop the Waqf property which was to be developed under the Island Waqf project carried out by the Ministry of Islamic Affairs. The IDB also sent a team to study the project. The main objective of this project is to ensure the money received by leasing the property developed is dedicated to building and renovating mosques. In the same month, for the first time, Maldives Islamic Bank introduced Zakat payment via its ATM machines, internet banking and via POS machines kept at the Ministry of Islamic Affairs.
In July, a bill was ratified by the president to create the first Islamic university of the country that will create an Islamic trust fund. In August, the Ministry of Economic Development in affiliation with Maldives Islamic Bank introduced an Islamic finance scheme worth of MVR30 million (US$1.93 million) for the micro, small and medium enterprises in the name of ‘Faseyha Madadu’. This scheme was introduced with the assistance from Asian Development Bank and the IDB. In the ceremony to introduce the scheme, it was also announced that the minimum reserve requirement of banks were reduced to 10% from 20%, which is a positive incentive for the growth of Islamic banks. Throughout the year, Islamic finance awareness events were held and the Masters in Islamic Finance Practice program of the International Center for Education in Islamic Finance (INCEIF) also continued in affiliation with Capital Market Development Authority and the Islamic University of Maldives (previously known as the College of Islamic Studies). Also in the struggle to create an adequate talent pool for the Islamic finance industry of the country, education minister Dr Aishath Shiham visited INCEIF and scholarships were offered via the ministry to complete the Master’s degree program in Islamic finance. Islamic liquidity management instruments via securitizing generator sets and an airplane were also offered by the government of Maldives.
Preview of 2016
The year 2016 will boost the number of Islamic finance products in the country. It is hoped that the Bank of Maldives will commence the offering of financing products and the HDC will be prepared to offer the Islamic products to the public. Allied Ayady Takaful is in the midst of preparation to offer Family Takaful for the first time in the country. More short-term liquidity management products will be introduced. A government-owned SPV will also be created with Maldives Islamic Finance Center. In short, with the government’s will and full support, the year 2016 will be a dynamic and prolific year for Islamic finance in Maldives.
It is anticipated that the year 2016 will bring more positive changes to the Islamic finance landscape of the country as the government has new plans to introduce a regional Islamic finance centre in the country that will act as the hub of Islamic finance in the South Asian region. As such, it is important to make hay while the sun shines as now is the best time to head forward, strengthen and sustain Islamic finance in the small island nation.