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Graphics: Ismail Imdhad/ Adhadhu
The Maldives Monetary Authority (MMA) has determined that the Bank of Maldives (BML) acquired the SME Development Finance Corporation (SDFC) in violation of banking laws.
The MMA has now sent a letter to all relevant authorities to inform them that the transaction was illegal. However, the MMA and BML have not yet commented on the matter.
The President's Office said on Sunday that the decision to sell SDFC to BML was taken after discussions in the cabinet following a paper submitted by the Finance Ministry on a proposal from the national bank.
However, according to the Banking Act, the MMA's permission must be obtained before any such transaction can be conducted. This means that a proposal can only be submitted with the permission of the central bank. However, BML conducted the transaction without any approval.
Banking Act
20 - Changes in ownership and becoming a major shareholder (a) Any person, acting directly or indirectly or in concert with other persons, who proposes to become a major shareholder in a bank, shall obtain approval of the MMA prior to acquiring the shares that will make the person a major shareholder. A person shall be deemed to be acting in concert with one or more other persons if, in the judgment of the MMA, they are acting pursuant to an understanding, whether formal or informal, to actively co-operate in acquiring a voting interest in a bank. 21 - Merger (a) No bank shall merge or consolidate with any other bank or acquire, in whole or in part, either directly or indirectly, the assets of, or assume the liabilities of, any other bank except with the prior approval of the MMA.
A source familiar with the matter said the MMA had instructed the transaction to be resumed after the procedures were properly conducted.
BML said SDFC will become a Sharia-compliant subsidiary of the bank.
"The Sharia-compliant, digital-first subsidiary of BML is expected to significantly boost its lending capacity — surpassing that of SDFC — while maintaining the attractive lending terms for MSMEs set by SDFC," BML stated.
"In its proposal, BML committed to lending MVR 500 million in the first year, with a target of MVR 1.9 billion over the next five years, and an allocation of MVR 300 million to support business start-ups over the next three years," the President's Office said on Sunday.
SDFC was created in 2019 and has issued around MVR 2 billion worth of loans over the past six years.
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