Maldives returns to sukuk market as pandemic crisis bites
June 30 2020 12:42 AM
Gulf times exclusive

By Arno Maierbrugger/Gulf Times correspondent/Bangkok

The small island nation of the Maldives in the Indian Ocean, an Islamic banking and finance jurisdiction quite under the radar of the global Shariah-compliant finance industry, is returning to the international sukuk market amid budget troubles caused by the coronavirus pandemic.
The country’s president Ibrahim Mohamed Solih at a press conference held in the capital Malé on June 23 announced plans to sell sukuk worth $300mn to international investors to cushion the negative impact of the Covid-19 crisis on the nation’s economy whose GDP relies to about 30% on tourism which has come to a standstill owing to global lockdowns and suspension of international flights. Solih said that if the government could sell the full amount of sukuk as planned and the expected additional development assistance “from various countries” materialises, the negative impact of the virus on the Maldives’ economy would be “easily manageable.”
The announcement came after the government decided against taking on debt at the same amount in yen currency from the Japan Bank for International Corp, a development financing agency, in the form of so-called Samurai bonds. Against this, the international sukuk offer should broaden the range of potential investors, particularly those from the Middle East, the president said.
However, some analysts fear that the president sounded too optimistic over the new sukuk. Overall, the Maldives needs around $1.2bn to fill the hole in the state budget which has been torn open by the Covid-19 pandemic. Making things worse, both credit rating agencies Fitch and Moody’s have revised their ratings on the Maldives following the economic downturn and have noted that it would become more “challenging” for the country to sell financial instruments such as bonds due to its rising indebtedness on the international financial markets. Fitch Ratings in March downgraded the Maldives’ long-term local and foreign currency issuer default ratings to B from B+ and revised the outlook to negative from stable, while Moody’s in May downgraded the same rating to B3 from B2 and maintained its negative outlook.
Still, borrowing through Islamic debt could turn out to be less challenging for the small island nation given that it enjoys support from certain oil-rich countries in the Middle East related to its religious policy that emphasises on Islam as a state religion in a rather strict form, as well as due to its geostrategic location. 
That said, the Maldives approached Islamic finance relatively late. Islamic finance was first introduced in the country only in 2005 when Sri Lankan insurance company Amana Takaful set up a Shariah-compliant branch in Malé. But it took until 2011 for the first Islamic bank to open in the country under the name of Maldives Islamic Bank, which happened under the administration of then-president Mohamed Nasheed after the Maldives Money Authority issued its first Islamic banking regulations, including for sukuk issuance and Islamic securities. The bank is a joint venture of the Islamic Cooperation for the Development of the Private Sector, a division of the Islamic Development Bank, and the government of the Maldives. It quickly met strong demand from the Maldives’ 520,000-people population which so far had no domestic opportunity of handling their money matters in accordance to their faith.
In the same year, Amana Takaful was listed at the Maldives Stock Exchange as the first Shariah-compliant equity, and in 2012, the first non-banking Islamic financial service institution was launched in form of an Islamic window of the semi-governmental mortgage provider Housing Development Finance Corp, called HDFC Amna, which also issued the country’s first corporate sukuk in 2013. The government followed with its first-ever sovereign sukuk in the same year.
Following these first ventures into Islamic finance, about a dozen financial institutions offering Islamic financial services and products were so far launched in the country, including Islamic banking windows and more takaful operations. HDFC Amna launched two more Mudarabah sukuk in 2017 and 2019, respectively.
One of the latest initiatives was the launch of the Maldives Center for Islamic Finance in 2016, established as a fully government-owned institution tasked with providing a link between the Maldives’ domestic Islamic finance market and the international Islamic finance industry and with developing the Maldives into an “Islamic finance hub” and offshore jurisdiction in the Indian Ocean.
However, the full potential of Islamic banking has still to be explored further in the Maldives, also in order to diversify to some extent the country’s economy away from tourism towards financial services which so far contribute only 3% to GDP. To that end, the Maldives Center for Islamic Finance has been working on a roadmap for Islamic finance and the development of more financial services and capital market instruments, only to be disrupted by Covid-19 this year.

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