6. Financial Sector
Capital Markets and Portfolio Investment
Maldives Stock Exchange (MSE), which first opened in 2002 as a small securities trading floor, was licensed as a private stock exchange in 2008. The Securities Act of January 2006 created the Capital Market Development Authority (CMDA) to regulate the capital markets. The MSE functions under the CMDA. The only investment opportunities available to the public are shares in the Bank of Maldives, Islamic Bank of Maldives, five state-owned public companies, a foreign insurance company, a foreign telecommunications company and a local shipping company. The market capitalization of all companies listed on the exchange was USD 857 million at the end of 2018.
Foreigners can invest in the capital market as both retail and institutional investors. Capital market license holders from other jurisdictions can also seek licenses to carry out services in the Maldives capital market. There are no restrictions on foreign investors obtaining credit from banks in Maldives nor are there are restrictions on payments and transfers for current international transactions.
Money and Banking System
The Maldives financial sector is dominated by the banking sector. The banking sector consists of eight banks, of which three are locally incorporated, four are branches of foreign banks and one is a fully owned subsidiary of a foreign bank. There are 52 branches of these banks throughout the country of which 33 are in the rural areas. Additionally, at the end of 2017 there were 116 automatic teller machines (of which 51 were located in rural areas) and 230 agent banking service providers. Maldives has correspondent banking relationships with six banks. Maldives has not announced intentions to allow the implementation of blockchain technologies (cryptocurrencies) in its banking system. International money transfer services are offered by four remittance companies through global remittance networks. Two telecommunications companies offer mobile payment services through mobile wallet accounts and this service does not require customers to hold bank accounts.
Non-bank financial institutions in the country consist of four insurance companies, a pension fund, and a finance leasing company, a specialized housing finance institution and money transfer businesses. Maldives Real Time Gross Settlement System and Automated Clearing House system is housed in the Maldives Monetary Authority for interbank payments settlements for large value and small value batch processing transactions respectively. There has been an increase in usage of electronic payments such as card payments and internet banking. All financial institutions currently operate under the supervision of the Maldives Monetary Authority.
Foreign Exchange and Remittances
Rules relating to the foreign exchange market are stipulated in the Monetary Regulation of the Maldives Monetary Authority (MMA). Both residents and non-residents may freely trade and purchase currency in the foreign exchange market. Residents do not need permission to maintain foreign currency accounts either at home or abroad and there is no distinction made between foreign national or non-resident accounts held with the banks operating in Maldives. The exchange rate is maintained within a horizontal band, with the value of the Rufiyaa allowed to fluctuate against the U.S. dollar within a band of 20 percent on either side of a central parity of MVR12.85 per U.S. dollar. In practice, however, the rufiyaa has been virtually fixed at the band’s weaker end of Rf 15.42 per dollar, according to the IMF.
Rules regarding foreign remittances are governed by the Regulation for Remittance Businesses under the Maldives Monetary Authority Act of 1981. There are no restrictions on repatriation of profits or earnings from investments. The government imposes a three percent remittance tax on money transferred out of Maldives by foreigners employed in the Maldives. Effective from 1 January 2017, the coverage of the remittance tax was broadened to include the withdrawal of cash abroad in instances where the withdrawal is made from a bank account opened in the Maldives or by using a prepaid cash card issued by a bank in the Maldives.
Sovereign Wealth Funds
In 2016, Maldives Finance Minister Ahmed Munawar announced plans to establish a “Sovereign Development Fund (SDF)” that would support foreign currency obligations incurred to executive public sector development projects. In March 2020, the government announced the SDF has amassed USD 272 million.