SMALL & MEDIUM

ENTERPRISE (SME)
DEVELOPMENT

week6
LEARNING OBJECTIVES
By the end of this lecture students should be
able to understand:
Economic Environment for SMEs in
Maldives
Contributions of SMEs to Maldivian
economy
Impact of SOEs on SMEs
Policies & Regulations Affecting SMEs
Cost of Doing Business in the Maldives for
SMEs
INTRODUCTION
Policy makers around the globe does not debate
on the fact that SME plays a crucial role in
supporting employment, and enhancing economic
growth. SMEs increases production, and exports
and generate employment, and facilitate lifting
poor out of poverty. Hence SME development is
considered crucial element in the development of
the Maldivian economy.

Despite its intrinsic competitive disadvantages, the Maldives
has one of the fastest growing economies in South Asia
Tourism and fisheries has been the main two sectors
supporting economic growth, generating employment, and
creating linkages towards the other sectors
Overall Maldives seem to be doing well, and have potential for
growth, however the extent to which the developments are
transferred to different segments of the society are limited.
One of the most easiest ways to transfer the benefits would be
to encourage growth of SMEs

THE MALDIVES GENERAL ECONOMIC
INDICATORS, 2001-2011
THE MALDIVES SECTORAL CONTRIBUTIONS
TO GDP (%), 2001-2011
ECONOMIC ENVIRONMENT OF SMES IN
MALDIVES
Among 7000 registered companies half of these are
assumed to be active, and most of them are either
micro, small, or medium-sized businesses
About 45% represented MSMEs located within the
Kaafu atoll where Mal (capital of the country) is
located
The MSME sector is restricted to a limited range of
activities with majority of the enterprises being
engaged in retail trade.
A vast majority of MSMEs remain unregistered and
operate informally, collectively they play a key role in
providing goods and services in the local economy and
represent the backbone of the domestic labor force
As per ADB report SME contribution to GDP has
so far not shown any significance progress.
The contribution of the agriculture remained
stagnant at around 2.5% during the five year
period 2006-2011; the contribution of the
fisheries sector has actually declined from 4.1%
to 2.9%
ADB identifies huger involvement of government
enterprises in the economy as being a key
challenge in further development of SMEs
Most SMEs operate as singler operators (54.7%),
which 36.2% operates as family business units.
SURVEY DONE BY MED IN 2010 ON THE TYPE
OF ACTIVITIES REVEALED THE FOLLOWING;
Manufacturing (11.2%)
Services (10.7%),
Construction (3.1%),
Transport (1.6%).
Other activities (15%)
Retail Trade (32.9% )
DEFINING SME
Category Full time employees Annual
Income/Turnover
Micro enterprise 5 - 0 500,000 0
Small enterprise 30 - 6 5,000,000 500,001
Medium enterprise 100 - 31 20,000,000
5,000,001
The main objective of defining SME is to target micro finance and
technical assistance to where needed. Other than this it would
enable to collect information properly, and have a more inclusive
information of SME and better implementation of SME policy.
POLICY ON SME
The current National Framework for
Development 2009-2013 that the Government of
the Maldives is supported under Anne Dhivehi
Rajje, known as the strategic action plan,
provides policy guidelines for national
development and underscores the new
administration recognition of the important role
of the micro, small, and medium-sized
enterprises (MSME) sector in contributing to a
more resilient and diversified economy as well as
creating more employment opportunities,
especially for women, particularly in the outer
atolls.
POLICY ON SME
Provide Small and Medium Enterprises (SMEs) with subsidies to
minimize the difference between the rich and the poor and to
encourage a business environment that will extend more economic
benefits to the public.
Establish an institution and develop human resources required for
the development of SMEs within the Food Security sector.
Create more opportunities for SME participation in the three main
industries, tourism, fisheries and agriculture, through the
formulation of relevant policies. Assist and facilitate
SME participation in agriculture, transport and and
infrastructure development sectors.
Provide technological capacity for SMEs to expedite the growth
and development, given that the development of SMEs is crucial to
economic progress.

SHORT TERM GOALS (1-3 YEARS)
Facilitate the growth and development of SMEs
through the development of human resources.
Encourage the participation of women in the SME
sector.
Revive the crafts industry by utilizing modern
machinery and facilitate the trade of local souvenirs
in the tourist market.
Give priority to SMEs when awarding regional
government contracts.
Formalize the SME sector and facilitate for the
registration of SMEs at the regional administrative
centers of the country to further expedite the
registration process for the start-up SMEs.

LONG TERM GOALS (1-5 YEARS)
Promote local products in the domestic market and
facilitate their export.
Establish a training facility for those wishing to
establish and promote SMEs in the Faculty of
Management and Computing.
Facilitate access to low-interest loans for the SME
sector and provide technological support training and
assist in marketing and promotion.
Support and develop traditional crafts practices in the
atolls.

CHALLENGES FACING SMES IN MALDIVES
Internal constraints: Lack of technically skill labor, management
and accounting skills, and market information are the principal
concerns of MSMEs The market competitiveness of MSMEs in the
Maldives suffers due to :
limited market information and market linkages
links with suppliers and other national and international MSMEs
infrastructure facilities
transport
finance
market protection
technology support
training services
Skills deficiencies among youth and low
participation of women :Identification and
creation of entrepreneurial opportunities for the
poor, including women and youth, and facilitation
of skills development through business and
vocational training programs has been limited.
Youth unemployment is also substantial and has
been increasing in recent years, with the result
that 40.0% of young women and over 20.0% of
young men are currently unemployed
Poor access to credit for business operation and
expansion : Access to credit facilities is the biggest challenge
in doing business in Maldives. Given the housing shortage and
group housing loans procedures in Mal, there is a lack of
clarity on property rights. This acts as a major constraint for
MSMEs in accessing finance, as lenders are reluctant to take
land as collateral if they are unable to sell it freely upon the
borrowers default. In addition to lack of suitable collateral,
lack viable qualitative information, financial statements and
accounts often put MSMEs in the high-risk and non-bankable
category
Difficulty in getting legal recourse :The lack
of a bankruptcy law further reduces the chances
of loan recovery in the event a borrower becomes
insolvent. All this makes security agreements for
MSMEs highly risky, costly and difficult to
enforce. Setting up a secured transaction registry
is needed to address this issue.
Legal and regulatory constraints: Suitable
legal and regulatory environment is an important
factor influencing MSMEs sectors access to
finance. In the Maldives, weak legislations and
poorly developed financial sector limit SME
financing
Logistical constraints: The Maldives is ranked
125th among 155 countries on the basis of the
World Banks 2010 Logistics Performance Index
(LPI), which includes transport costs, quality of
infrastructure (e.g., roads, ports, etc), tracking
and tracing of consignments, and timeliness of
delivery
Monopolized business practices : Due to the
relative small size of the economy, much of the
trade, transport, and tourism industry is
controlled by only a few from the private sector
Limited CSR Initiatives for MSME
promotion. Although there are a large number
of international brands operating in the tourism
sector in the Maldives, there is no defined
corporate social responsibility (CSR) charter for
contributing to MSME development
Lack of integrated approach to MSME
development: One of the biggest challenges
faced by MSME sector is lack of integrated
approach by the government to MSME sector
development.
Limited access to enabling technologies.
Though the penetration of enabling technologies
in the Maldives MSME sector is growing, it is
still in a very nascent stage of development which
limits information and knowledge sharing among
the MSMEs
STRENGTHS, WEAKNESSES, OPPORTUNITIES,
AND THREATS ANALYSIS OF MSME
CURRENT MEASURES TAKEN TO DEVELOP
SME
The strategic action plan of previous government
focused on development of SME through various
programs
ADB approved technical assistance in 2005 to support
development of MSMEs on the atolls by devising new
financing mechanisms and market accessibility plans,
and establishing centers for entrepreneurial training
ADB also approved a technical assistance loan in 2008
for the Private Sector Development Project (PSDP) to
minimize the problems of and improve the enabling
environment for MSMEs
Establishing and extending the credit information
bureau: The PSDP supported the establishment of a CIB.
By the end of 2011, the eight-member institution had
completed three cycles of loading data; of around 25,000
records of consumers and commercial loans (lending
facilities) that were initially submitted
Line of credit facility and credit guarantee fund: The
PSDP provided a $3 million line-of-credit facility (LCF) to
widen access to finance for MSMEs.
Start-up training through business development service
centers: The PSDP established two BDSCs. They will be the
chief vehicle for the delivery of business development service
products to MSMEs in a drive to create cluster development in
targeted regions.
Privatepublic partnerships: Capacity-development assistance
has been provided for strengthening the enabling environment for
the private sector, for structuring PPPs, and for MSMEs, as well
as for the use of this modality in the power and transport sectors
Bolstering the legal and institutional
framework: MSME development is premised to a
large extent on an enabling legal, regulatory, and
institutional framework. ADB stated that it would
assist the government in further strengthening the
institutional framework in the Maldives by initiating
new legislations and amending existing ones to secure
the confidence of both lenders and investors in the
enforcement of their rights
SUGGESTED POLICY RECOMMENDATIONS
TO DEVELOP SMES
Development approaches for SMEs implemented by selected
bilateral and multilateral agencies
MALDIVES CAN USE THE FOLLOWINGS TO
DEVELOP SME
Create an enabling environment covering appropriate policy and
regulatory framework, including effective institutional framework
and probusiness fiscal policy, and supporting infrastructure
development, such as power, transport, communication, water, etc.;
Entrepreneurship development, including management skills and
human resources;
Financing a business;
Fostering business development services;
Technology transfer and adaptation; and
Market access, including trade promotion.