Dr. Aishath Muneeza, Associate Professor
INCEIF, The Global University of Islamic Finance
Microfinance is a new concept in the Maldives. In 2015, the first Islamic microfinance scheme was introduced under the name of “FaseyhaMadadhu” with assistance from Islamic Development Bank. The products developed under this scheme were unique as it was shaped by looking at local needs. This paper will discuss these products and the features of it.
It is hard to find literature about the subject matter as this is a newly introduced scheme and the first-hand experience of the author in structuring and implementing the scheme has been relied extensively. It is anticipated that the outcome of this paper will pave the way for those jurisdictions that aim to introduce Islamic microfinance.
“Faseyha Madadhu” Scheme
“FaseyhaMadadhu” scheme is the first Shariah compliant microfinance scheme introduced by the government of Maldives. The scheme was introduced in 2015. “Faseyha” is the Dhivehi (language used in Maldives) word for easy and “Madadhu” is also a Dhivehi word which means assistance or help. Hence “Faseyhamadadhu” means easy assistance. Forty percent of the total financing facility is allocated for women and youth entrepreneurs.
Under the scheme, micro (businesses with up to 5 employees and an annual income of 500,000 Maldivian Rufiyaa (MVR)) businesses can apply up to Maldivian Rufiyaa hundred thousand; small (business employing between 6 and 30 persons and an annual income between 500,001 and 5,000,000 MVR) businesses can apply up to Maldivian Rufiyaa five hundred thousand; and medium (business that employs between 31 and 100 persons and an annual income between 5,000,001 and 20,000,000 MVR) businesses can apply up to Maldivian Rufiyaa one million. For newly set up businesses the maximum amount of financing that could be given is Maldivian Rufiyaa three hundred thousand.
The targeted sectors in this scheme are tourism, transportation, construction, fisheries and agriculture. For tourism sector, Shariah compliant financing assistance is only given to purchase materials to develop guest houses and to purchase equipment to produce handicraft items. As for the transportation sector, the Shariah compliant financing facility is provided only to replace old taxis with new cars and to purchase vehicles other than cars used for land and sea transportation purposes. For construction sector, Shariah compliant financing will only be given for the purpose of purchasing machineries or materials used for construction. Finally in fisheries and agricultural sector, Islamic finance facility can be given to buy machinery that will be used to process fisheries or agricultural produce or to purchase machinery that will help to value add fisheries and agricultural produce. In agricultural sector Islamic finance facility can also be obtained if the applicant wishes to produce crops employing innovative ways using technology.
Types of Contracts
Murabaha (a trust sale whereby it is mandatory to disclose the cost price and the profit stipulated in the price to the buyer) and bai’salam (forward sale whereby the delivery of the commodity will be made in a future date and the price of it will be settled in full at the time of the contract) are the contracts used to structure these products. Except for the agriculture category where applicant wishes to produce crops employing innovative ways using technology, for the rest of the categories, murabaha is the underlying contract used.
There is no additional collateral requirement except for the equipment or assets purchased under the scheme which will be mortgaged as security. The tenure of the financing facility will be determined based on the financial documents submitted by the applicant and the tenure will not exceed six years. The financing rate is 9% per annum, which is relatively high for a microfinance product.
Though “faseyhamadadhu” scheme was successfully launched, the success of these products is yet to be tested as the successful applicant is yet to be chosen by the Bank of Maldives. The Bank of Maldives received around 119 applications and the majority of these applications had to do with obtaining financing for the transportation sector.
Be that as it may, we feel it is imperative to follow a model that is different from the conventional loan-based model where money is given to improve livelihood. It is necessary to research and formulate ways to control the whole chain of activities that will begin with product approval to the end, establish proper monitoring mechanisms, introduce incentive giving mechanisms based on success level of customers, adopt financing rates that are affordable to the target audience which is significantly below the commercial rates and incorporate an entity that will assist in the process.