Financial Services for the Fisheries Sector

Maldives Case study

Draft - Confidential

February 2011

John Linton and Fareeha Shareef

This report is an output from a project funded by the German Agency for Technical
Cooperation (GTZ) for the benefit of developing countries. The views expressed here
are not necessarily those of GTZ.

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Table of Contents

I Acknowledgements ........................................................................................................ 3
II Map of the Maldives ....................................................................................................... 4
III Summary ....................................................................................................................... 5
IV Introduction .................................................................................................................... 6
V The Fisheries Sector A brief history ............................................................................ 6
V.1 Game changing event 1: Closure of traditional markets ......................................... 6
V.2 Game changing event 2: Fleet and infrastructure development.............................. 7
V.3 Game changing event 3: Opening up the market place .......................................... 7
V.4 Game changing event 4: Developing a new market ............................................... 8
V.5 Game changing event 5: The tsunami, big boats and better catches ...................... 8
V.6 Game changing event 6: The Crash .................................................................... 10
VI The Fisheries sector The current situation ................................................................ 12
VI.1 Management & Access ......................................................................................... 12
VI.2 The Value Chain ................................................................................................... 12
VII The Case Studies ..................................................................................................... 14
VII.1 Collection, canneries and larger facilities ........................................................... 14
VII.2 SME Fresh Fish processing facilities ................................................................. 15
VII.3 Boat Owners ..................................................................................................... 17
VIII Lenders .................................................................................................................... 18
VIII.1 Lending in the Maldives ..................................................................................... 18
VIII.2 The Case Studies .............................................................................................. 18
VIII.2.1 Bank of Maldives ........................................................................................ 18
VIII.2.2 Maldives Finance Leasing Company .......................................................... 19
IX Conclusions ................................................................................................................. 21

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Acknowledgements
We are very grateful to all those in the Maldives who gave generously of their time and
knowledge. We would particularly like to thank Mohammed Rashid and Mohammed Amir for
their advice and for organizing such an excellent series of meetings.
We would also like to thank GTZ for funding this case stusy and the others in this series.

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I Map of the Maldives

Felivaru Cannery
and Cold Store

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II Summary
Fishing, processing and marketing of tuna is a traditional activity in the Maldives.
This study has examined two value chains:
- The pole and line fishery for (mainly) skipjack tuna, destined for the canned or
pouched tuna market
- The line fishery for (mainly) yellow fin tuna destined for the fresh fish markets in
Europe and Japan.
Production of fish peaked in 2005/6, with approximately 180,000 tons of fish landed, of which
approximately 135,000 was skipjack tuna. This was exclusively caught by Maldivian
fishermen, using traditional and modified traditional vessels called Dhonis. Approximately
1,300 of these vessels were registered in 2009.
In 2007 the fishery crashed, with catches declining by nearly 30%. This decline has
continued, with reported catches in 2010 being only 88,000 tons less than 50% of the
peak.
None the less, investment during the early 2000s has resulted in the Maldives having a
relatively modern fleet and world class fish processing and marketing facilities. Maldivian
fish is exported world wide.
Initial investments in the fisheries sector was undertaken through development projects
financed through loans from organisations such as the World Bank and IFAD. Other
development support was also provided.
More recently, investment has been provided through other sources, such as buyer credit,
commercial credit, savings and equity.
As might be expected, investments have performed poorly in recent years, but investors
have so far reacted by rescheduling loans rather than forcing foreclosures.
In spite of recent events, the fisheries sector continues to operate and innovate. In the
absence of any unforeseen external shocks, the likelihood is that it will continue to do so.
Its development from an artisanal fishery servicing a regional and domestic market to a
global player has been aided by a number of factors, four of which are: the traditional role of
fishing in Maldivian culture, the development finance and initial innovation generated through
development projects, the tourism sector and the enabling environment.

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III Introduction
This case study focuses on those involved in two fisheries: The pole and line fishery for
skipjack tuna and the line fishery for yellow fin tuna and big eye tuna.
Historically, fishing has been an integral part of Maldivian economy and culture. Over the
last four decades the sector has been the focus of development initiatives, both public and
private. During this period, the sector has experienced instances of change game-
changing events that have that have radically and irredeemably changed the face of the
industry.
It is not the purpose of this case study to provide an in-depth analysis of the development of
the Maldivian fisheries sector. The purpose is to examine how this development has been
financed, with particular emphasis on the role that the SME sector has played. However,
this cannot be done without a brief description of the fishery and the markets it serves.
This report seeks to present an overview of the fisheries sector and the experiences of a
number of the people who are working in that sector.

IV The Fisheries Sector A brief history

The Maldives has caught, processed and provided fish and fisheries products for the region
since time immemorial. The main product was smoke-dried skipjack tuna - a product known
as Maldives fish. This was the mainstay of the Maldivian economy and, until 1972, its main
foreign exchange earner.

Plate 1. Traditional preparation of Maldives Fish Plate 2: The end product for sale, Male Market

IV.1 Game changing event 1: Closure of traditional markets

In the early 70s, the Maldives main trading partner, Sri Lanka closed its doors to Maldivian
imports. The Government of the Maldives responded in two ways:
Commercial partners (the Japanese) were engaged in joint venture to purchase fresh fish
from Maldivian fishermen. This was frozen and exported for further processing overseas.
Development aid was sought from various sources, mainly Japan and the World Bank.

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IV.2 Game changing event 2: Fleet and infrastructure development
Over the next twenty years, the sector continued to develop. Specifically,
A programme for upgrading and mechanisation of the traditional fishing vessel the dhoni
was embarked on. A fleet of first generation dhonis were constructed and provided to
fishermen on a very attractive credit basis 10% down and fixed interest repayment over 10
years.

nd
Plate 3. Traditional Fishing Dhoni Plate 4. Mechanised 2 Generation Dhoni

A fish collection system, based on collection vessels supported by larger reefer vessels was
installed and operated on a regular basis.
A cannery was constructed at Felivaru in Lavhiani Atoll. Following several developments,
the cannery eventually had a capacity to process approximately 50 tons of wet tuna per 8
hour shift. The cannery also had cold storage facilities.
A larger cold store was built at Koodoo in the south.
Maldives established itself as a world player in the tuna business, exporting frozen tuna for
canning to Thailand and exporting canned tuna globally.
During this time, commercial freezing and canning activities were run by the Government on
a monopoly basis; firstly by the State Trading Organisation with technical support being
provided by the Fisheries Project Implementation Department and after 1993 by the State
owned company, MIFCO.

IV.3 Game changing event 3: Opening up the market place

The fishing industry was opened up to commercial investment in 2000. This opening up was
mainly focussed on the skipjack pole line fishery, with the end market being fish for cans.
The Maldives was apportioned in four zones, with bids invited for licences to operate in each
zone. Two licences were issued per zone. Licences were issued for 25 years, recently
extended to 35 years.
It is noted that these licences were specifically for the purpose of purchasing and processing
pole and line caught tuna; destined for canning. Entrepreneurs were free to engage in other
areas.
This resulted in competition for raw material and investment in infrastructure. Today there
are 12 EU compliant processing facilities, two large canneries, ice facilities throughout the
Maldives and well over 10,000 tons cold storage facilities throughout the Maldives.

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This process is continuing and it is understood that there are plans to establish further cold
storage facilities.

Plate 5. Tuna cannery, Maldives Plate 6: Pole and line fishing for skipjack

The process of opening up the market continues. As of January 2011, small to medium
enterprises can apply for licences to purchase fish in the four controlled zones. So far, one
such company has taken up the opportunity.
Also, the State owned enterprise, MIFCO has been broken up in to three separate entities
and it is understood that these will be privatised in the near future.

IV.4 Game changing event 4: Developing a new market

In the 90s, virtually no fresh fish was exported from the Maldives. Today, this market sector
is worth over US$ 23 million per annum. Fish mainly yellow fin and big eye is caught and
iced and then delivered to processing factories, mostly located in the vicinity of Male.
The fish is then processed, iced and air freighted mainly to Japan and Europe.

Plate 7: Yellow fin Tuna ready for export by air Plate 8: Kandu Oiy Giri Fish Village (MIFCO)

The fresh fish market is considerably more lucrative than that for canned or frozen skipjack.
There is at least a tenfold increase in unit value compared to skipjack destined for the
canning industry.

IV.5 Game changing event 5: The tsunami, big boats and better catches
The Tsunami of December 2004 was clearly a game changing event, but possibly not in the
way one would have expected.

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As many as 120 fishing vessels severely damaged or lost and about 50 vessels partially
damaged. This equated to approximately 10% of the registered fleet. The artisanal
processing sector was affected also. Approximately 10% of the Maldives fish cottage-based
processing units were lost (37 of the 333 commercial processing units).
The situation could have been worse, but at the time that the Tsunami reached the Maldives
the majority of the fishing fleet were out at sea fishing. As a result many boats did not get
lost or damaged and many lives were not threatened.
The industry recovered rapidly. On January 1st, 2005, many boats returned to fishing,
supplying the collector vessels that were not any longer involved in relief activities. Artisanal
fish processing, however, took longer to resume as damage assessments and relief
activities continued well into February 2005.
The international response to the Tsunami resulted in considerably increased levels of
financial support to all sectors in the Maldives. Table 1 presents a selection of credit lines
that were available the years following the Tsunami.

Project Name Project Details Purpose

Contribution from MNCCI, MATI & BML
Loan Scheme for Revitalizing the livelihood of
MNCCI: Rf. 6,006,514.76
Livelihood the tsunami affected population
MATI: Rf. 6,537,348.55
Revitalization focusing on tsunami affected small &
BML: Rf. 6,271,931.66 (approx.$1.4m)
Programme medium businesses
Term 05 yrs
Long term fund for development of
Medium term loan of
individuals, businesses (small &
Development Banking USD 5,000,000/- from Agence Francaise de
medium enterprises) that were hit by
Program Developpement (AFD) of Paris
tsunami to Refinance loans granted
Term 10 yrs
by bank
Fisheries Funded by Government of Maldives: Rf.
Small loans for development of fishing
Development 5,000,000/- (approx.$ .3m)
communities
Programme Term 2 yrs
To promote & facilitate
Total fund: Rf. 25,000,000/-
Fisheries refrigerated seawater systems & other
BML: Rf. 15,000,000/-
Development post harvest chilling systems on
Government of Maldives: Rf. 10,000,000/-
Programme- board Maldivian fishing vessels to
(approx.$1.9m)
RSW Scheme improve the post harvest quality
Term 10 yrs
assurance of fish
Loan Scheme of the
Funded by Government of Maldives: Rf.
Agriculture To promote & facilitate agriculture
583,324.85 (approx.$.45,750/-)
Development development in agrarian communities
Term 02 yrs
Programme
Poverty alleviation program
To promote employment and income
Microfinance Project Total fund: us$:3,350,000/- Funded by IDB
generating activities
to BML Term 03 yrs
Reduce income disparity within and
btw outer atolls & Male'
Total Amount US$ 11,997,750

Table 1: Lines of Credit for Unsecured Loans (S. Moeller, 2006)

At the same time, fishing actually improved radically. Landings in the 2005 were
approximately 25% above those in 2004.
The combination of access to resources for rebuilding, better catches, more lucrative
markets and increased outlets for catches led to serious capitalisation in the fisheries sector.

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More sophisticated vessels were designed and built locally a third generation dhoni
emerged. This vessel was considerably larger (25m and more) than previous vessels. The
new dhonis also were much more comfortable for those who had to work on them.
Being larger, they had better storage, and thus were able to land more fish in a given time.
The table below presents landings over the period.
Year
Species
2001 2002 2003 2004 2005 2006
Skipjack 88 115 108 110 132 138
Yellow-fin 15 22 20 23 22 20
Other tuna 7 7 8 7 8 6
Reef & bottom fish 16 16 16 17 21 17
Total 125 160 152 156 183 181
Table 2: Fish production in the Maldives, 2001 - 2006 (000 tons)

rd
Plate 9. 3 Generation dhoni

IV.6 Game changing event 6: The Crash

Then, in 2007 the fishery crashed.
Catches of skipjack in particular declined to a level of less than 50% of their 2006 level. The
decline in other species was less marked. Indeed, landing of other tuna and reef fish

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 increased slightly over the period. However, this may have been due to transferring of effort
by the fishermen in response to diminishing landings of their main target species.
The severity of the crash is shown in table 2, below
Year
Species
2005 2006 2007 2008 2009 2010
Skipjack 132 138 97 87 66 n/a
Yellowfin 22 20 22 23 20 n/a
Other tuna 8 6 7 7 9 n/a
Reef & bottom fish 21 17 15 15 21 n/a
Total 183 181 141 132 115 88
Table 2: Fish production in the Maldives, 2005 - 2010 (000 tons)

Although this decrease in landing was a huge problem, the effect was slightly mitigated by
the improved unit price achieved in export markets. This is shown in table 3, below.

Year
Category
2004 2005 2006 2007 2008 2009
000 Tons Consumed locally 30 52 33 44 43 51
000 Tons exported 123 130 148 98 88 60
Value of exports (R000) 1,155,584 1,312,338 1,709,989 1,357,222 1,591,940 958,408
Unit value of export (r/t) 9,433 10,126 11,523 13,906 18,008 15,973
Table 3: Fish Utilization in the Maldives, 2004 - 2009

This was born out in discussions. Indeed, those involved in the processing and export of fish
see value addition, through what ever means as the route to a secure future.
None the less, the crash has had dire effects on the sector. As discussed later in this report,
this has been noticed in the financial sector, where the majority of loans to fishermen for
vessel construction are either in default or have been rescheduled.
The reason for the collapse of the fishery is not known. It would be simplistic and wrong to
blame over-fishing in the Maldives. Tuna is a migratory stock and the Maldives is more
susceptible to over-fishing outside of its territorial waters, than the activities of their domestic
fishermen. This is underlined by the relatively stable catches of their domestic reef fish
stocks.
It is also worth noting that there is substantial narrative evidence to suggest that economic
problems were exacerbated by the trend towards larger and larger vessels. Larger Higher
running costs combined with decreasing fish stocks has made many of these vessels
unviable. Had careful economic analysis taken precedence over emotion and fashion, some
of the problems that the boat owners are currently facing could have been avoided.

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V The Fisheries sector The current situation

V.1 Management & Access

The Ministry of Fisheries and Agriculture has the overall mandate for the sustainable
management and development of the sector.
The fishery is managed on the basis of open access, although there are a few restrictions:
- Waters within 75 nautical miles are reserved for Maldivian fishermen
- Licences for purse seining anywhere within the Maldivian EEZ are not issued.
Details concerning access are laid out in the Fisheries Law of 1987.
All vessels are licensed.

V.2 The Value Chain

Over 90% of investment an effort is focused on two fisheries, servicing five value chains.
These are shown below:

Canned tuna
Catch sold to Canning
collector vessel

Fresh fish, for the

Exported frozen to tourist trade
Pole and line fishing
overseas canners
Catch sold to
shore facilities

Fresh fish, for the

domestic market

Catch sold to Traditional

artisanal processors processing

Smoked fish, domestic

Line fishing & regional market

Processing for the

Fresh fish export
Catch sold to export market Fresh fish, for the
processors export market

The Pole and Line fishery is mostly (but not exclusively) undertaken in locally built 3rd
generation dhonis, up to 35m in length. They predominantly catch skipjack tuna. This is
mostly sold to collector vessels, which freeze or chill the fish on board, or directly to one of
three large freezing facilities. Some surplus is sold to local Artisanal processors.
The fish that is purchased by the collector vessels or freezer plants will either be canned for
export at one of Maldives two canneries or will be exported frozen or semi processed to
other canneries in the region.

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It is noted that one of the canneries has diversified in to producing pouches a variation of
the canning process.
The Line Fishery is also undertaken by locally build second and third generation dhonis,
although these tend to be slightly smaller than the pole and line vessels. Line fishing is also
carried out by smaller motorised craft. The larger vessels mainly supply the fresh fish export
market.
Fish will be iced as it is caught, stored on ice and sold to one of the 12 or so facilities that are
licensed to export ot the EC. Once there, the fish will be processed an exported as chilled
product. Surplus is sold to the artisanal processors.
Artisanal processors will generally smoke dry the fish to service the regional and local
market.
There is also a large domestic market serviced by both fisheries. This includes the tourist
trade. There were approximately 800,000 tourists in 2010. If each tourist consumed 1 kg of
fish (not unrealistic in a tourist destination where seafood is a main attraction) this equates to
800 tons!
There is also a large domestic and regional market for traditionally processed fish. The raw
materials are mainly sources from the pole and line vessels.
There are other, smaller value chains, including beche de mer, lobster, shark fin and
aquaculture. As diversification is the objective of both the Government and the private
sector, it is expected that these value chains will grow.
A crude margin analysis was undertaken by the author in 2006. Although this is not
accurate in todays market, it does indicate the relative attractiveness of the various markets
and processes.
(Maldives)

Katsubishi

yellow-fin
Smoked
skipjack

Canned

Unit
Frozen

Fresh
tuna

fish

Cost of raw material $/kg input 0.35 0.35 0.35 0.35 1.18
Utilization rate % yield 98% 35% 18% 12% 90%
Net cost of raw material $/kg 0.36 1.00 1.94 2.90 2.90
output
Income to processor $/kg 0.70 2.10 1.94 3.00 3.50
output
Gross margin $/kg 0.34 1.10 0 0.10 0.60
output
49% 52% 0% 3% 63%
Table 4: margin analysis, undertaken in 2006

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VI The Case Studies
The table below gives an overview of the current situation:
Segment Investment Source Comments
needs
Ports, collection > US$ 20 Development Finance Felivaru Cannery and Koodoo
vessels, canneries million developed through WB Loan
& large freezing Commercial finance Private facilities developed through
complexes and Equity commercial financing
SME Fresh Fish US$ 100,000 Buyer credit In one instance, a buyer invested US$
processing US$ 300,000 in a processing plant.
Facilities 10,000 Commercial finance Typically, 30% down, 5 years @ 12-
14%
Joint venture with Used for establishing the operation.
foreign partner In most cases the JV partner has
been bought out.
Boats and fishing US$ 50,000 Development finance The sector was kick-started through
gear 500,000 development finance (WB, JICA etc)
Savings Savings and cash have played a
major part in vessel purchase.
Commercial finance Typically 50% down, 5 years @ 12-
14%
Buyer credit Vessels are provided to fishermen by
traders / processors.
Leasing 20% down, 5 years, 14%
Table 5: Overview of financing needs and solutions in the fisheries sector

VI.1 Collection, canneries and larger facilities

Development Finance
Although this is not the focus of the case study, todays fisheries sector has been driven by
the establishment of infrastructure.
In the first instance this was achieved through development finance. The World Bank Group
was prominent in this. Three WB loans helped the Maldives to develop the basic
infrastructure which allowed them to commercialize the fisheries sector. Two loans, totaling
nearly $50 million was used to construct freezing facilities, ports, infrastructure and collection
vessels. New vessel designs were developed and improved fishing vessels were made
available to fishermen. Significant investments were made in capacity strengthening, not
only in the commercial sector, but also in the broader area of fisheries management.
These investments contributed greatly to creating the enabling environment where private
sector commercial activities could flourish.
Commercial Finance and Equity
To give an indication of scale, Maldives largest private sector fisheries company, Horizon
Fisheries, has, or shortly will have at least 6000 tons cold store, a 70 ton input tuna cannery,
a number of collector vessels a reefer vessel a fully operational port and ice making facilities.
This has required an investment of approximately US$ 70 million. This has been financed
through equity and commercial finance.

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This investment was triggered by the company being awarded preferred access to fish
resources, through the competitive process described in V.3.
The key issues facing the company at the present time are:
a) The threat posed by the decreasing catches.
b) Their concern that their access to resources is being eroded through further opening
up of access (allowing SMEs to purchase fish in previously restricted zones)
c) The opportunities that could be realized through the effective branding of the unique
nature of the Maldivian fishery (environmentally friendly pole and line)

Issues
The initial investment by the Government has created an enabling environment. It could be
said that it set the scene for further investment. Certainly, the dhoni development
component and associated distribution of vessels to fishermen radically changed the fleet
demography.
The level of private sector investment in infrastructure is high. One wonders what the level
of investment would have been, had the collapse in landings been foreseen.
Horizon Fisheries is wary of the threat of uncontrolled access to the resource that they use.
This underlines the importance of a managed enabling environment.
A company of Horizons stature is also part of the enabling environment. If they (or similar
organizations) were not there it would severely limit the market that the primary producers
(the fishermen) service.

VI.2 SME Fresh Fish processing facilities

There are 12 EC licensed, export grade processing facilities in the Maldives, of which most
(in number terms not capacity) service the market for fresh yellow-fin tuna.
Typically, the investment cost for establishing such a facility is between US$ 200,000 and
US$ 1,000,000.
Two organizations of this type were interviewed in this case study.
a) Ensis Fisheries Pvt Ltd
Ensis Fisheries was established in 2002. Originally, it was established as a joint venture
with a Japanese company. The Japanese brought 15 long liners and a processing barge.
Ensis brought access.
After 2 years they parted company and the Maldivian partners established their own facilities
on the Airport Island. They now have an EC compliant processing plant and six vessels.
They also have ice making facilities on the Northern-most atoll.
They work regularly about 15 vessels that provide them with fish. Although there are no
formal agreements, these vessels land almost exclusively to Ensis. Ensis provides them
with cool boxes and ice.

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Their investment has been significant - in the US$100,000s, if not low millions. At least
some of this has been financed through debt. Their bank is the HSBC and the terms were
30% equity and 70% debt. The repayment period is 4-5 years at 10-12%.
They also have their own fishing vessels which were financed through leasing arrangements
with Maldives Finance Leasing Company. They were very satisfied with this. (see
subsequent section).
They mainly target yellow-fin, originally for the Japanese market. They have since
diversified in to the European market, and are now exploring the US market for frozen
yellow-fin steaks. They see the next step to be adding value to skipjack.
They have provided finance to fishermen to purchase their own vessels, but with no great
success. They financed seven vessels at about 2-3 million Rufiya each. They had three
successes, four failures. This may be linked to the decline in fish stocks.
Management views the market is the biggest opportunity and the source of raw material
biggest constraint.
Ensis Fisheries is part of the Ensis Group which also has interests in tourism and textiles.
b) Bigfish Company Pvt Ltd
BigFish is a subsidiary of private firm Bukharee Company Pvt Ltd, a long established fish
trading company. BigFish was established specifically to exploit the fresh yellow-fin market.
Today they have an EC licenced, export quality processing facility at Himmafushi Island,
near Male.
Early financing needs were provided through credit from their main buyer. The management
team found out that their main buyer was holidaying at Kurumba Resort, close to Male.
They approached him with a proposition which, some six months later resulted in the buyer
providing BigFish with a US$300,000 interest free loan to develop their facilities.
Recently they finalised plans for further expansion through a partnership with The
Industrialisation Fund for Developing Countries (IFU) of Denmark. This, if had gone ahead
would have been a major investment over US$ 20 million. However, the crash in fish
catches meant that the project was shelved at the last moment.
BigFish owns and operates 10 vessels. In addition it has provided approximately US$ 2
million to finance fishing vessels for fishermen. Typically, they will provide a loan which will
allow a vessel owner to build the boat. The vessel owner will then obtain a commercial loan
to purchase the engine. They do not stipulate any period for pay-back. Nor will they charge
interest. They fishermen who who have received support from BigFish will sell their catch to
them.
BigFish operates according to Islamic business principles.

Issues
The SME processors are an important source of finance for people who wish to purchase
vessels.
If you have vision, drive, ability and a good business plan then commercial finance is not the
only option.

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VI.3 Boat Owners
During the interviews it became clear that boat owners have access to multiple sources of
finance (as opposed to credit) and several types of finance might be used in the purchase of
a single vessel.
Boat owners are often investors. They are not necessarily fishermen. Indeed, the
impression was that owner-operators were by no means in the majority. A new vessel
Ownership is segmented as follows:
Owned by an investor, operated by a hired crew: an entrepreneur will invest in a
fishing vessel and hire a captain and crew. A number of such investments were made
during the boom in 2005-6.
Owned by an investor, on behalf of a fisherman/captain: many of the fishermen do
not have bank accounts or credit histories. This means that they do not have access to
commercial finance. A family member who does have a credit history will then act on
their behalf. It is noted that the family member who acts on their behalf we retain full
liability for any credit arrangement.
Owned by a fisherman, upgrading from a previous vessel: This is probably the
largest category of owner operators. Typically, they would have started with a first or
second generation dhoni, provided through the World Bank financed credit scheme.
Owned by a fisherman, upgrading to become an owner/operator: This will mostly
be financed through savings and credit.
As shown in the value chain, fish is caught and then sold to processors. All transactions are
in cash. This means that there is a large amount of cash changing hands. For example,
Horizon Fisheries will pay out US$ 200,000 on a good day! It is understood that very little of
this cash enters the banking system. It circulates.
Payments to owner, captain and crew are made on a share system. There are variations,
but the basic principle seems to be one share to the owner and one share to the captain and
crew once fuel and ice costs have been deducted. The ownership model therefore impacts
on the cash flow available for servicing debt. An owner-operator will have better cashflow
than an investor.
By and large, a fishing vessel will be financed through a combination of savings, commercial
credit and (in some cases) buyer credit.
Typically, savings will be used to build a vessel and commercial credit will be used to
purchase the engine. It is noted that the major engine supplier and the leading bank have
excellent working relationships and will collaborate in arranging credit for a potential
borrower.
Vessels will cost between US$ 150,000 and $500,000 depending on build material, size and
engine size.
The minimum collateral required by a commercial lender is 20%. Collateral is generally
financed by savings, often in the form of the fishing vessel, the construction of which will
have been financed through savings.

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VII Lenders

VII.1 Lending in the Maldives

Table 6 below shown the pattern of lending in the Maldives, 2005-2010. This indicates a)
the importance of fishing to the national economy and b) the recent downward trend

Year
2005 2006 2007 2008 2009 2010
Loans and advances, (Million Rufiyaa, end of year) 5,458 8,185 2,486 16,122 15,404 15,094
Agriculture 14 17 38 39 31 29
Fishing 355 641 1,183 1,089 961 896
Manufacturing 87 140 491 581 532 493
Construction 296 526 1,054 1,369 1,264 1,120
Real estate - - 153 296 358 691
Tourism 3,048 4,298 6,536 9,317 9,149 8,698
Commerce 1,007 1,655 1,299 1,837 1,588 1,774
Transport and Communication 235 367 551 787 814 678
Electricity, gas, water and sanitary services 2 1 573 0 4 8
Other loans and advances not adequately described 415 539 609 807 703 708
Total 5,458 8,185 12,486 16,122 15,404 15,094
% of total (main economic groups)
Fishing 6 8 9 7 6 6
Construction 5 6 8 8 8 7
Tourism 56 53 52 58 59 58
Commerce 18 20 10 11 10 12
Transport and Communication 4 4 4 5 5 4
% Change on year
Total - 49.9 52.6 29.1 -4.5 -2.0
Fishing - 80.9 84.4 -8.0 -11.8 -6.7
Construction - 77.8 100.4 29.9 -7.7 -11.4
Tourism - 41.0 52.1 42.5 -1.8 -4.9
Commerce - 64.3 -21.5 41.4 -13.6 11.7
Transport and Communication - 56.5 49.9 42.9 3.5 -16.8

Table 6: Lending in the Maldives: Private sector loans and advances by economic group

VII.2 The Case Studies

Two lenders were interviewed: The Bank of Maldives and The Maldives Finance Leasing
Corporation.

VII.2.1 Bank of Maldives

The Bank of Maldives is a private limited company with Government shareholding. It is the
largest commercial lender to boat owners. It also has the largest (until recently only)
network of branches throughout Maldives. Approximately 10% of their loan portfolio is with
the fisheries sector. (7% in 2009).
The bank will provide loans to boat owners to support acquisition of a fishing vessel. They
require 50% equity. The current interest rates are 11-12% and the term is 6-7 years.
The bank will accept the vessel as collateral but require that the vessel is completed at the
time that the loan is made. This fits well in the observed process, where surplus income

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from fishing is used to finance vessel construction and commercial finance is used to finance
the purchase of engines and equipment.
The bank recognizes that it has a close relationship with its clients. Its borrowers are
generally experienced fishermen and the business process is perceived to be straight
forward. Also their experience is that the business skills of the borrowers are generally
acceptable. Thus, a detailed business plan is not part of the application process.
The bank, as with the rest of the sector, has suffered from the radical decline in catches.
Their response has been to reschedule loans rather than to foreclose.
Table 7, below presents the performance of the Bank of Maldives fisheries portfolio,
compared to other sectors.

2009 2008 Change

Sector
Rf'000 % of total Rf'000 % of total Rf'000
Fisheries On track 242,133 5.35% 457,133 9.47% (215,000)
Total 539,177 7.29% 649,785 7.84% (110,608)
% of loans that are on track 44.91% 70.35%
Construction On track 745,469 16.48% 841,629 17.43% (96,161)
Total 928,652 12.56% 1,050,544 12.68% (121,892)
% of loans that are on track 80.27% 80.11%
Tourism On track 2,288,624 50.60% 2,008,535 41.61% 280,088
Total 4,309,462 58.28% 4,526,898 54.62% (217,436)
% of loans that are on track 53.11% 44.37%
Others On track 1,246,791 27.57% 1,520,080 31.49% (273,290)
Total 1,617,309 21.87% 2,061,038 24.87% (443,730)
% of loans that are on track 77.09% 73.75%
TOTAL On track 4,523,016 100.00% 4,827,378 100.00% (304,362)
Total 7,394,600 100.00% 8,288,265 100.00% (893,666)
% of loans that are on track 61.17% 58.24%

Table 7: Bank of Maldives Loan performance ( Source: Banl of Maldives Annual Report)

The percentage of loans that are on track that is to say neither past due nor impaired are
significantly lower in the fisheries sector than in other sectors. Moreover, this became
significantly worse in 2009, compared to 2008.

VII.2.2 Maldives Finance Leasing Company

MFLS was established in 2002 in response to a Government strategy to accelerate
development of the SME sector. There were various investors including IFC (they took
20%). Technical expertise was provided by the NDB Bank of Sri Lanka. Originally, fishing
vessels were not a target. Indeed, the financing of fishing vessels did not sit well with the
finance leasing model and a few core rules had to be bent to accommodate this innovation.
MFLS got involved in financing fishing vessels in 2005/6. This was in part driven by a
temporary surge in catches which rose from 1.5 tons per day to about 8 tons per vessel per
day.
Finance leasing rapidly became the vehicle of choice for investors. The commercial banking
sector were reluctant (expensive) and finance leasing were happy to take the asset as
collateral. All you needed was 20% and a credit history.

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So, they hit the first problem in 2006: The boom in vessel construction led to fierce
competition for skippers and crews. This was amplified by the fact that most investors were
not fishermen.
It has been reported elsewhere that many investors were relations of fishermen who were
able to bring the credit history, if not the 20%.
So, skippers and crews would decamp to other larger vessels, where the perception was
that catches (and thus income) would be greater. This is a reflection of the share system
that is prevalent in the Maldivian fishery.
The second problem was not long in manifesting itself. Fishing was so good that there was
a surplus which attracted unlicensed buyers. They would arrive at the fishing grounds at a
convenient time, cash in hand. The fishermen would then sell the fish they caught in the
morning for cash and then carry on fishing. They would bring the one or two tons they
caught in the afternoon back to the owner and report this as the catch for the day. This was
not enough to service the loan! This problem itself was also amplified by the trend towards
bigger boats, which had a greater purchase price and a greater running cost. They needed
the bigger boats to attract the crews who would deliver the greater catch that was needed to
service the debts...........and so it goes on!
And then the third problem hit. The fish catch crashed. The bigger vessels need to land 4
tons per day, 26 days per month to break even. At the start of the boom the catch averaged
at 8 tons per day.
Also, bait fish (an essential part of the process) was becoming harder to find.
72 vessels in total were financed.

50 are still on the books, 22 have been successfully paid off.

35 are in default, 8 in repossession (Generally MFLC doesnt bother with

repossession.

The leasing cost is about $4K a month on average.

A wooden 80 boat costs about US$150K, a fibreglass boat $300K upwards.

At its height, fishing vessels represented 35% of the portfolio. Now probably 20%

In 2004 MFLC had a portfolio worth $ 5 million. This rose to a height of $30 million in
2007 and is now $18 million. This fluctuation is entirely due to their adventure in the
fisheries sector.

Their three major sectors are transport, fishing and speed boats/safari boats. The
last of these is the largest and most successful.

The MD said the lesson he learned was dont bend the rules and dont go in to a sector
unless you understand it.

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VIII Conclusions
The fisheries sector is economically and culturally important to the Maldives. It is an
example of sustainable development that generates not only livelihoods but wealth.
Maldivians not only are involved, but lead most elements of the value chain. Fisheries is a
major export earner and the major source of protein for the Maldives.
The sector which has been the focus of this case study is developed and sophisticated. It
could not have been such has it not been for investment. Investment has come from
multiple sources: Savings, development finance, commercial finance, equity and buyer
credit to name a few. Recently, this investment has been made available because fishing in
the Maldives has been a good business proposition.
SMEs prospective boat owners in particular have had reasonable access to credit
through various avenues. It would appear that less credit has been made available recently,
but there again, there has been less requirement for new investment. This has clearly been
due to the collapse of the skipjack fishery. Indeed, relatively easy access to credit during the
boom in 2005-6 has possibly resulted in over-investment in relation to the new level of
production.
In spite this, the sector continues to operate and innovate. Efficiencies are being sought and
more lucrative markets developed. The fisheries sector may have taken a battering, but it is
still standing.
The sector is clearly an integral part of the Maldivian economy and, in the absence of a
major external shock, will continue to be so. It is suggested that the growth of the sector
from a cottage industry servicing a regional and domestic market to a highly sophisticated
global player is in part due to the contribution of four factors:
Tradition: The Maldives has a long tradition of fishing, processing and regional trade of
fish and marine products. Entry in to a relatively capital intensive market has been a
process, not a radical change.
Development aid and development finance: The closure of the Maldives traditional
market in 1972 brought in development aid. This in turn brought technological
developments which led to improved productivity and processing methods which meant
that new markets could be accessed. This new technology was made available to the
fishing community through credit schemes. Development aid also brought the means to
bring technical skills to the Maldivian fishery through capacity strengthening and
technical transfer.
The Tourism sector: Collection, processing and marketing of fish was opened up to the
private sector in 2000. Most (but not all) of the major investors had interests in the
tourism sector. Both Horizon and Ensis have their roots in the tourism sector. The fact
that three were skilled entrepreneurs with resources meant that investment opportunities
became realities. Also, the fact that the major players are part of more diverse trading
groups perhaps makes them more able to resist the shocks that any sector experiences
from time to time.
The Enabling environment: The enabling environment covers all the external factors in
which a sector operates. It is suggested that the enabling environment in Maldives has
contributed to the growth of the sector, has promoted investment in the sector and has
provided a mechanism that helps to effectively manage risk. Specifically (but not
exclusively):

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 - The Maldives is politically stable and has clear rules and regulations. Rules for
investment and business are clearly laid out.
- The resource is managed. It could be said that the decline in catches suggests that it
is not as well managed as it could be, but the fact is that the tuna stocks are
migratory and outside of the Maldives control. In this context it is noted that the
Maldives is very active in regional management initiatives.
- There is infrastructure in place to support economic activity. The Maldives as a
dispersed island nation faces challenges in this regard, but none the less, effective
infrastructure is in place.
- The industry has a voice. Through its association, the industry is able to interact with
Government to put forward its case and to work in partnership to address issues as
they arise.
- There is clearly a good understanding between the financial sector and the fishing
sector. The trend has been to reschedule and support, rather than to foreclose. This
is in part driven by necessity!
There is no doubt that the sector is facing very difficult times. However, fishing, processing
and marketing continues. If it had not been for the four factors, the situation could have
been much worse.

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Annex 2: People met
Name Organisation Location

Adnan Ali Managing Director, Horizon Fisheries Male

Mohamed Rasheed Deputy Managing Director, Horizon Male

Fisheries

Mohamed Amir Ministry of Finance Male

D. Soosaipillai CEO, Maldives Finance Leasing Compnay Male

Mohamed Hiyas COO, Maldives Finance Leasing Company Male

Hamid Ahmed Felivaru Fisheries Limited Felivaru

Mohamed Waseem CEO, Ensis Fishing Hulhumale

Ali Kiza CEO, BigFish Ltd Himafushi

Rashfa Jaufar Manager, Monitoring & Supervision Section, Male

bank of Maldives

Ramesh Krishnan Chief Credit Officer, Bank of Maldives Male

Shahaama Sattar Fisheries Biologist, Marine Research Centre Male

Hassan Shakeel Senior Biologist, Marine Research Centre Male

Ibrahim Athif Shakoor MD, Acuity Quest Ltd Male

Ali Shareef Boat owner mALE

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