The Maldivian economy
The Maldives economy has been growing at an annual average of over 7.5% for the past decade. GDP was USD 663 Mn in 2005. Tourism is the main industry, contributing to over 33% of the GDP. Fisheries, Marine Transportation and Trade follow close behind. The Maldivian economy is regarded as exemplary in the region and welcomes foreign investment.

Interest rates have been virtually constant in the range of 7.75 ~ 13.0 since 2003 having come down from a high of 12 ~ 15 previously. The country has a managed float exchange rate regime with the Local currency, the Maldivian Rufiyaa, currently pegged to the USD at 12.75 and freely exchangeable. As of 2005, the country’s foreign exchange reserves stood at USD 187.1 Mn, amounting to 3 months of imports.

Financial Services sector
The Maldives financial sector is dominated by commercial banks, the foremost of which is the state owned Bank of Maldives, the country’s only indigenous bank with 17 branches situated in the distant atolls and serving the island communities. The rest are branches of the State Bank of India , Bank of Ceylon, Habib Bank and HSBC, all of them with single locations in the capital Male’. Competition among banks is intense given the rate of growth in the economy. Lending tends to be short to medium term with fixed rate funding scarce.

Leasing in the Maldives
The government of the Republic of Maldives through the country’s central bank, the Maldives Monetary Authority (MMA), www.mma.gov.mv has over the past decade or more made strident efforts to broad base and strengthen the country’s financial sector. The MMA, with the assistance of the IFC/World Bank promulgated and issued the Regulations for Finance Leasing Companies and Finance Leasing Transactions in 2001, which paved the way for finance leasing to be made available in the Maldivian Financial Services sector as an asset based financing alternative to the country’s business and entrepreneurial community.

Lessees look for a speedy and efficient service and competitive pricing when evaluating a lease option against that of a bank loan for equipment. Finance leases in the Maldives being thus far fixed rate, have been able to compete with the variable rate funding available from the banks.

Annual Lease penetration of estimated capital goods imports and that of GDP is estimated at 6% and 1% respectively.

Being a very young industry and still at under half its first portfolio life cycle, lessor funding has so far been from equity and initial loans from multilateral agencies overseas. A Lessor cannot accept public deposits but can issue debentures to corporate entities.

The general regulatory climate is very conducive to the industry with the MMA actively supportive of leasing as a tool to broad base the economy and to empower the SME sector in participating in the economic growth of the Maldives . The leasing regulations in place are very comprehensive though not restrictive and are yet to be tested in areas such as recovery, repossession and legal. All marine vessels and vehicles require registration at a central registry and title therefore is without dispute in a lease. Lessors require a specific license from the MMA to commence leasing operations in the Maldives and would be subject to the MMA’s regulatory supervision and the provisions of the existing leasing regulations.

The Maldives is free of taxes of most forms affecting the leasing industry or the purchase, ownership or sale of movable assets.

Leasing in the Maldives has without doubt good long-term potential. The continuing emphasis on the benefits of leasing to the entrepreneur and marked value additions to the product would enhance the demand for finance leasing in the Maldives.