Empowering SMEs for Diversified and Resilient Economy

Aerial view of Hulhumalé beach area. | Photo: Passporter

Small and medium-sized enterprises (SMEs) are a vital part of the Maldives’ economy, accounting for over 90% of registered businesses and providing more than 60% of the country’s jobs according to reports on the Maldivian economy, including the World Bank’s Country Partnership Framework for the Maldives (2019-2023) and the Maldives National Bureau of Statistics.

Despite their significance, SMEs in the Maldives face a range of challenges that limit their growth and potential contribution to the economy. However, the government is exploring ways to empower SMEs and build a more diversified and resilient economy.

The environment for SMEs in the Maldives is diverse and dynamic, reflecting the unique characteristics of the country’s economy and society. SMEs operate in a variety of sectors, including tourism, fisheries, agriculture, construction, manufacturing, and services.

Many SMEs are family-owned and operated, with a focus on delivering personalized and high-quality products and services to customers.

One of the main challenges facing SMEs in the Maldives is access to finance, as many lack collateral and credit histories to secure loans from banks and other financial institutions.

The government has launched several initiatives to address this issue, such as the SME Development Finance Corporation (SDFC), which provides loans and grants to SMEs, and the Small and Medium Enterprise Development Act 2013, which aims to create a conducive environment for SMEs to thrive.

Another challenge for SMEs in the Maldives is access to technical support and business development services. Many SMEs lack the skills and knowledge needed to compete in a rapidly changing market, especially in the areas of digitalization, innovation, and sustainability.

The government has established the Maldives Business Development Corporation (MBDC) to provide training, mentorship, and advisory services to SMEs, as well as the National Centre for Information Technology (NCIT) to promote digital literacy and e-commerce.

Moreover, SMEs in the Maldives face regulatory barriers and bureaucratic hurdles, such as cumbersome licensing requirements, high taxes, and limited market opportunities. The government is working to simplify and streamline regulations, improve tax incentives, and open up new markets for SMEs, including through international trade agreements and partnerships.

Despite these challenges, SMEs in the Maldives have significant potential to contribute to economic growth, job creation, and social development. With the right support, SMEs can innovate, expand, and diversify the country’s economy and build resilience against external shocks such as pandemics, climate change, and geopolitical risks.

To empower SMEs, the government is exploring various measures such as providing them with better access to finance, technical support, and market linkages. It includes creating new financing mechanisms such as a small business loan guarantee scheme and improving access to credit through financial sector reforms.

The government is also considering streamlining regulations and reducing bureaucratic procedures to make it easier for SMEs to start and operate a business.

Furthermore, the government is exploring the potential of digitalization to help SMEs increase their productivity, access new markets, and improve their competitiveness. For example, it is developing an e-commerce platform to help SMEs sell their products and services online.

Critics, however, argue that empowering SMEs is not enough to sustain long-term economic growth in the Maldives. They point to the need for greater investment in infrastructure, education, and human capital development to build a strong foundation for sustainable growth.

For example, the country’s transport infrastructure is often cited as a bottleneck to growth, with limited connectivity between islands and the mainland.

There are also concerns about the quality and availability of education and training opportunities, particularly in areas such as science, technology, engineering, and math (STEM) that are critical to the growth of high-tech industries.

Despite the challenges, many are optimistic about the potential of SMEs to drive economic growth and development in the Maldives.

SMEs have the potential to create new products and services, tap into new markets, and foster innovation and entrepreneurship, which are all crucial to driving economic growth in the long run.

In addition, SMEs have a unique role to play in promoting sustainable development and environmental stewardship in the Maldives. Many SMEs operate in sectors that are heavily reliant on natural resources, such as fisheries and agriculture.

By promoting sustainable practices and reducing their carbon footprint, these SMEs can help to protect the country’s fragile ecosystem and preserve its natural beauty for future generations.

Moreover, SMEs can also play a key role in promoting social development and gender equality in the Maldives. Many SMEs are owned and operated by women, who face unique challenges in accessing finance, markets, and technical support.

By empowering women entrepreneurs and supporting women-led SMEs, the government can help to promote gender equality, reduce poverty, and foster inclusive growth.

Despite these efforts, challenges remain for SMEs in the Maldives. Limited access to finance, technical support, and market opportunities continue to hinder the growth and development of many small and medium-sized enterprises.

In addition, the country’s vulnerability to external shocks such as climate change and geopolitical risks poses a significant threat to SMEs and the wider economy.

However, there is reason for optimism. The Maldives’ vibrant and dynamic SME sector has demonstrated resilience and innovation in the face of adversity. With the right support and investment, SMEs could play a critical role in building a more diversified and resilient economy that benefits all Maldivians.

As the government continues to prioritize the empowerment of SMEs as a key driver of economic growth and development, the future looks bright for the Maldives’ small and medium-sized enterprises.

In conclusion, SMEs have significant potential to drive economic growth and development in the Maldives, but they also face significant challenges in accessing finance, technical support, and market opportunities.

The government’s efforts to empower SMEs through better access to finance, training, and digital technologies are a step in the right direction, but more needs to be done to address the structural barriers and bottlenecks that limit SMEs’ growth and competitiveness.

With the right support and investment, SMEs can become a dynamic and innovative force that drives economic growth, promotes sustainable development, and fosters social inclusion and gender equality in the Maldives.