Why and How to improve Financial Literacy in Maldives

Maldives as an economy is well poised in every aspect to take off towards a double-digit growth. Despite the fact that It has been a country with high political volatility over the past decade or so, the Maldivian economy continued its growth trajectory recording real Gross Domestic Product (GDP) growth of 7.6% in 2018 in comparison to 6.9% in 2017. The economy expanded at a Compound Annual Growth Rate (CAGR) of 10.3% in the five-year period from 2013 to 2018 in terms of nominal GDP. Now that country has been on a stable political footing, the strategic path for accelerated growth of the country is cleared.

However, it is vital to note that the country is a tiny island nation with a population of 533,941 (mid-year 2019 data as per the MMA) spread across 26 atolls. Active participation of this population in the economic activities is very significant for this accelerated growth, while that will only ensure a fair distribution of the income and minimize concentration of wealth to a smaller circle. A significant part of the population could be educated to participate in the capital market activities through small time investments. This will boost the internal capital generation and support new investments and then support economic growth.

While the regional financial markets have become more complex and advanced, the Capital market in Maldives, especially the stock market is yet to take off. The capital market of a country becomes the engine of fast-growing economies around the world by providing the right platform to generate new capital on one side and avenues of earning decent investment income on the other. However, in Maldives there are only 9 Companies operating the stock market at the moment. The 10th Company has just announced its IPO. One of the primary reasons identified for the stock market not being so active is, lack of financial literacy. The recent IPO’s revealed that the majority of the people who bought shares in small quantities were for mostly with an intention to save rather than as an investment. On the other hand, the participation of the Corporate sector in stock market activities also seems very dismal.

In order to activate the capital market, especially the Maldives Stock market, both the demand and supply sides need to be stimulated. While the investors and the potential investors need to be educated about the stock market operations, analyzing financial statements, and so on, the medium and large-scale corporates, which contributes the most to the economy, also need to be educated to place confidence in the stock market, be transparent to the shareholders, corporate governance and be investor friendly.

The demand side, i.e the investors can be classified into different groups such as government staff, teachers, private sector workforce, middle and senior managers, SME sector entrepreneurs, and the directors of large Companies who do not have a finance background. Their capacity for investment and the thirst for growth may be different. However, it is vital they are addressed with different approach in improving their financial literacy. The corporate sector too is an important part of the demand side in other parts of the world. Especially the banking and finance sector invests significantly in the stocks and that is part of the portfolio management strategy. It is important to elevate their financial literacy of the senior management and the board of directors from a different angle as well.

On one side, this will help very much to the people at the senior management level and the board of directors who do not have a financial background, to drive the performance of the organizations and improve efficiency at their respective areas and the organizations at large. Especially, the Non-Finance Board members will be empowered with the right knowledge to ask the right questions at performance reviews and critical decision-making points. Further, the directors, who are ultimately accountable for the corporate failures, should be vigilant enough to understand the Company’s performances, financial position and the future direction. Thus, financial literacy will be of very useful to them to fulfill their responsibilities as directors. On the other side, they need to be educated in investment analysis from share market perspective and boost their confidence level in the stock market, so that new avenues of generating capital is available for future growth of the business.

Both the Maldives Monetary Authority (MMA) and the Capital Market Development Authority (CMDA) have recognized the need for improving financial literacy. Improving Financial Literacy is one of the key strategic objectives of the Strategic Plan of MMA for the period 2018-2022 while promoting Financial Literacy Awareness is one of the key strategic programs of CMDA included in the Strategic Plan for 2015-2019. However, it is important that the private sector joins hands with these institutions to achieve this mammoth task accelerated.  The Public, Private Partnership would bring in synergy in this endeavor.

Identifying this urgent need of the economy and the people of this country, Maldives Capacity Development and Governance Institute has launched a series of programs to upscale the financial literacy among the Entrepreneurs, Directors, Senior and Middle Management, State owned enterprises and government staff. MCDGI is geared to synergize with the relevant authorities and the private sector to upscale the financial literacy in the country. We invite the private companies and the state sector institutions to rally round this national cause.

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