loan case analysed
Government Loans Case: Analysis
Hussain Umar -Editorial-
The Maldives is an archipelago of 1190 islands scattered in the Indian Ocean. The country’s estimated population is not more than 350,000 (three hundred and fifty thousand).
The Maldives does not posses any natural resources such as fossil fuels or mineral deposits. The main natural resources that can be utilised, using economically viable methods are the sea (which makes up 99% of the country’s geographical area) and country’s beautiful beaches that earned the Maldives the status of a ‘dream holiday destination’.
Hence, fishing remained the major foreign currency earning industry of the Maldives for several centuries until tourism became the main foreign currency earner in the mid 1980s.
See also: http://countrystudies.us/maldives/1.htm
Maldives was classified within the ‘Least Developed Countries’ (LDC) list of countries and the Maldives’ per capita GDP was only a couple of hundred US Dollars in the late 1970s.
Traditionally the Maldives did not have any financial institutions or bodies that lent to the general public for investment purposes (NB: the Maldivian people were a simple people and were more worried about getting a square meal a day, rather than starting business ventures or purchasing/developing property. Traditionally, land was allocated to citizens to build on).
The first tourist resort was opened on Vihamanafushi Island (now famously known as Kurumba Village) in 1972. This was the beginning of the Maldivian ‘industrial and commercial age’. The birth of the tourism industry opened numerous avenues for jobs and subsidiary businesses, leading to improvements in living standards, in real terms.
The mechanisation of fishing dhonis (dhoni: traditional Maldivian vessel) in 1974 saw fishing vessels travel further than that was possible by the traditional sailing dhoni. This meant that fishermen were fishing waters that were previously unreachable. Hence the annual catch increased several fold, increasing the Gross National Product. This further contributed to the increase in standards of living.
The economic boom resulting from tourism and the mechanisation of fishing vessels meant that the priorities of the nation as a whole changed. People were more concerned with investing in property (building on the land allocated to them), human resource development (higher education at foreign universities) and starting up business ventures (capital investment).
As is widely accepted, economic growth primarily depends on capital investment and human resource development. The would-be Maldivian investors were faced with a double whammy. Firstly, there weren’t enough lenders to borrow from (The Bank of Maldives (BML) established in 1982, branches of State Bank of India (SBI) established in 1974, Habib Bank Limited (HBL) established in 1976, Bank of Ceylon (BOC) established in 1981, and a branch of the Hong Kong Shanghai Banking Corporation (HSBC) established in March 2002. There were no non-banking financial institutions until The Maldives Finance Leasing Company Pvt. Ltd., was established in May 2002. The Housing Development Finance Corporation Ltd (HDFC) was established in March 2004).
Secondly the would-be investors did not have any security to borrow against.
See also: http://www.mma.gov.mv/fs.php and http://www.mflc.org.mv
As a result the Maldives government, during the late 70s started lending loans to the general public and government employees to finance house-building, overseas education, capital investment and to finance medical care overseas, in an effort to boost the economy. At that time, these loans were awarded, based on reputation and verbal agreements. These loans are known as ‘Haassa Ehee’ or ‘special presidential loans’.
Analysts believe that the government loans scheme was also introduced in an effort to reduce corruption. “The government itself assists top officials financially, and hence they need not turn to private entrepreneurs for financing,” says Dr Waafir Siddiq, a specialist on macroeconomics, public finance, monetary and fiscal policy, in his recent article, “Dhivehi Iqthisaadh” (Maldives Economy).
Although the loans scheme that exists today is a remnant of what began in the 70s, it has evolved considerably. It still serves individuals who are unable to secure loans from financial institutions. At present, existing legislation, laws and practices govern the lending process. Assets such as property deeds are required as security. The government also demands an interest, above the base, rate on repayments. Although the interest rates demanded on these loans by the government are substantially lower than that demanded by financial institutions such as banks, these loans are considered as financially sound investments on the part of the government addressing the issues of capital and human resource investment on one hand while generating revenue for the government on the other. Several economic commentators believe that the interest rates demanded by the government on these loans addresses the issues of inflation resulting from the increase in purchasing power created by the injection of money into the economy by these loans.
Several analysts believe, that this government loans procedure, along with several other monetary and fiscal measures provided the sound platform that the Maldivian economy thrived on, over the last 27 years. The economic growth rate of the Maldives economy (7.5% for the last decade) is among the highest in the region.
http://www.mflc.org.mv/theeconomy.htm
As a result, the Maldives recently qualified to be taken out of the LDC list of countries. Minh Pham, the former UN Resident Coordinator in the Maldives, was quoted as saying “Graduation can in fact be perceived as a very positive step. Maldivians should be proud that the country has qualified for a medium development status, which directly reflects the fruitfulness of government efforts of the last two decades to improve the lives of the people”, while addressing this issue.
See also: http://www.internationalreports.net/asiapacific/maldives/2002/resisting.html
Hussain Umar -Editorial-
The Maldives is an archipelago of 1190 islands scattered in the Indian Ocean. The country’s estimated population is not more than 350,000 (three hundred and fifty thousand).
The Maldives does not posses any natural resources such as fossil fuels or mineral deposits. The main natural resources that can be utilised, using economically viable methods are the sea (which makes up 99% of the country’s geographical area) and country’s beautiful beaches that earned the Maldives the status of a ‘dream holiday destination’.
Hence, fishing remained the major foreign currency earning industry of the Maldives for several centuries until tourism became the main foreign currency earner in the mid 1980s.
See also: http://countrystudies.us/maldives/1.htm
Maldives was classified within the ‘Least Developed Countries’ (LDC) list of countries and the Maldives’ per capita GDP was only a couple of hundred US Dollars in the late 1970s.
Traditionally the Maldives did not have any financial institutions or bodies that lent to the general public for investment purposes (NB: the Maldivian people were a simple people and were more worried about getting a square meal a day, rather than starting business ventures or purchasing/developing property. Traditionally, land was allocated to citizens to build on).
The first tourist resort was opened on Vihamanafushi Island (now famously known as Kurumba Village) in 1972. This was the beginning of the Maldivian ‘industrial and commercial age’. The birth of the tourism industry opened numerous avenues for jobs and subsidiary businesses, leading to improvements in living standards, in real terms.
The mechanisation of fishing dhonis (dhoni: traditional Maldivian vessel) in 1974 saw fishing vessels travel further than that was possible by the traditional sailing dhoni. This meant that fishermen were fishing waters that were previously unreachable. Hence the annual catch increased several fold, increasing the Gross National Product. This further contributed to the increase in standards of living.
The economic boom resulting from tourism and the mechanisation of fishing vessels meant that the priorities of the nation as a whole changed. People were more concerned with investing in property (building on the land allocated to them), human resource development (higher education at foreign universities) and starting up business ventures (capital investment).
As is widely accepted, economic growth primarily depends on capital investment and human resource development. The would-be Maldivian investors were faced with a double whammy. Firstly, there weren’t enough lenders to borrow from (The Bank of Maldives (BML) established in 1982, branches of State Bank of India (SBI) established in 1974, Habib Bank Limited (HBL) established in 1976, Bank of Ceylon (BOC) established in 1981, and a branch of the Hong Kong Shanghai Banking Corporation (HSBC) established in March 2002. There were no non-banking financial institutions until The Maldives Finance Leasing Company Pvt. Ltd., was established in May 2002. The Housing Development Finance Corporation Ltd (HDFC) was established in March 2004).
Secondly the would-be investors did not have any security to borrow against.
See also: http://www.mma.gov.mv/fs.php and http://www.mflc.org.mv
As a result the Maldives government, during the late 70s started lending loans to the general public and government employees to finance house-building, overseas education, capital investment and to finance medical care overseas, in an effort to boost the economy. At that time, these loans were awarded, based on reputation and verbal agreements. These loans are known as ‘Haassa Ehee’ or ‘special presidential loans’.
Analysts believe that the government loans scheme was also introduced in an effort to reduce corruption. “The government itself assists top officials financially, and hence they need not turn to private entrepreneurs for financing,” says Dr Waafir Siddiq, a specialist on macroeconomics, public finance, monetary and fiscal policy, in his recent article, “Dhivehi Iqthisaadh” (Maldives Economy).
Although the loans scheme that exists today is a remnant of what began in the 70s, it has evolved considerably. It still serves individuals who are unable to secure loans from financial institutions. At present, existing legislation, laws and practices govern the lending process. Assets such as property deeds are required as security. The government also demands an interest, above the base, rate on repayments. Although the interest rates demanded on these loans by the government are substantially lower than that demanded by financial institutions such as banks, these loans are considered as financially sound investments on the part of the government addressing the issues of capital and human resource investment on one hand while generating revenue for the government on the other. Several economic commentators believe that the interest rates demanded by the government on these loans addresses the issues of inflation resulting from the increase in purchasing power created by the injection of money into the economy by these loans.
Several analysts believe, that this government loans procedure, along with several other monetary and fiscal measures provided the sound platform that the Maldivian economy thrived on, over the last 27 years. The economic growth rate of the Maldives economy (7.5% for the last decade) is among the highest in the region.
http://www.mflc.org.mv/theeconomy.htm
As a result, the Maldives recently qualified to be taken out of the LDC list of countries. Minh Pham, the former UN Resident Coordinator in the Maldives, was quoted as saying “Graduation can in fact be perceived as a very positive step. Maldivians should be proud that the country has qualified for a medium development status, which directly reflects the fruitfulness of government efforts of the last two decades to improve the lives of the people”, while addressing this issue.
See also: http://www.internationalreports.net/asiapacific/maldives/2002/resisting.html
And
http://www.twnside.org.sg/title/grow.htm
Hence the government loans policy, one of the more traditional policies, that reflects the close-knit nature of Maldivian society is seen by many financial experts as a balanced and vital economic tool for a small country like the Maldives. “It gives the average man on the street a fighting chance” concluded Dr Siddiq.
Recent articles on the weekly magazine “Adduvas” (issue 191) and other online ‘news’ websites stating that such loans were only awarded to the political allies of the government can only be seen as an effort to politicise something that has nothing to do with politics.
In depth investigation on this matter revealed that there is no discrimination based on family relations, atolls or islands or political stance in considerations for these loans. The only criterion is that the borrower be a Maldivian national. We have also found that the government has so far been very lenient on enforcing repayments.
Although the above-mentioned ‘news’ sources have reported otherwise our sources within the Maldives Monetary Authority (MMA) confirm that the majority of the oft-quoted 125 million has in fact been repaid. Analysis of the loans list reveals that total un-repaid sums amount to less than MRf fifty million.
It is worrying that, the above-mentioned ‘news’ sources failed to report the actual facts of the matter at hand.
Although not reported by these ‘news’ sources, Ibrahim Zaki (Vice President of the Maldivian Democratic Party (MDP)), Dr Munawwar (MDP leadership candidate), Mr Ismail Naseer (father of MDP leader Mr Ibrahim Ismail) and Mr Ahmed Moosa (MDP junior spokesperson based in Scotland, also the owner and editor of one of the above mentioned ‘news’ websites (dhivehiobserver)) are among notable opposition figures who have been awarded such “Haasa Ehee” for housing, medical and overseas education purposes.
Further, it has recently become evident that Abdulla Hasseen, the then editor of the above mentioned Adduvas magazine (Adduvas has always been anti-Gayoom and very sympathetic to the Maldivian Democratic Party) sought and succeeded in securing such a loan on behalf of Adduvas magazine, in 2002. It has also emerged that no repayments have been made to date.
http://www.themaldivian.org/dhivehi/dh2312.htm
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It is evident that the loans scheme is not a political tool. Rather it is a powerful economic tool employed by the government for the benefit of the entire nation. The economic indicators of the Maldives speak for themselves.
As promised olhuala.com has provided the facts. Please visit www.olhuala.com for accurate, unbiased coverage of Maldivian current affairs.
Hussain Umar
Editor – www.olhuala.com
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