The government has reduced the minimum reserve requirement (MRR) for commercial banks at the Maldives Monetary Authority (MMA) from 20 percent to 10 percent, Vice President Ahmed Adeeb revealed last night.
Speaking at a function held at the Dharubaaruge convention centre for the launching of an Islamic finance loan scheme for small and medium-sized enterprises (SMEs), Adeeb said the decision was made last Thursday in a bid to increase lending to the private sector.
“It is a very big step. The money that banks have to do business with have to be kept as minimum reserve – if MVR100 is deposited, MVR25 must be kept,” he explained.
Following the policy change, Adeeb said banks would now save MVR15 from every MVR100 deposited.
“This is I believe what sound economic policy is,” he said, adding that the government did not “abruptly drop” the reserve requirement.
The MMA has the authority to determine policies and implement timely changes, Adeeb said, suggesting that local businesses will benefit from the changes as banks would be able to increase its lending.
Adeeb noted that President Abdulla Yameen had reduced the MRR from 25 percent to 20 percent of the average local and foreign currency deposits in February 2014 as part of the current administration’s economic policy.
Economic policies should be “customised” for the developing Maldivian economy, Adeeb continued, and might not necessarily comply with “text book” free market policies.
Adeeb said the biggest challenge faced by local businesses was access to finance.
The ‘Faseyha Madhadhu’ Islamic financing loan scheme launched last night is an initiative of the ministry of economic development. Loans worth MVR30.8 million (US$1.9 million) will be issued through the Bank of Maldives’s (BML) Islamic Banking services for SMEs.
The scheme targets four main sectors: tourism, transport, construction, and fisheries and agriculture.
Application forms will be accepted from all BML branches from October 18 to 25.
According to BML, “a profit of 9 percent per annum will be added to the trading transactions, as per Islamic finance principles (4.5% per annum during grace period)” and assets used in the project are to be used as collateral
Some 40 percent of the scheme is allocated for women and youth entrepreneurs and the repayment period is six years.