What exactly does the loan moratorium entail?


Government initiated social housing scheme promises to provide affordable housing for struggling locals living on hefty rents

The Bank of Maldives (BML) earlier announced a deferment of loan installments or a six-month moratorium period amid the economic crisis due to the global viral pandemic; COVID-19.

Their decision? A means to provide relief; financial relief, for local businesses and individuals as the entire economy is facing stagnancy. Earning cap have declined and revenue figures have dwindled. Such is the case for business all around the country.

The worst hit was observed on the country’s strongest economic component; tourism industry.

Maldives, a country of richly scattered opulent islands of over 1,000 in numbers, have an approximate total of over 150 resorts that remained in full throttle with regards to its functioning before the viral pandemic posed dangers.

Even in 2019, the island nation celebrated its strongest arrival count till date which exceeded over 1.7 million travelers. The country’s government body with the mandate of managing, monitoring and governing the industry; Ministry of Tourism announced an ecstatic plan of improving the island nation’s tourism promotion in the following year; 2020.

Though the second largest economic component; construction industry, faced a major wind down by end of 2019 as several mega-scale projects had drawn close to conclusion, the sector was anticipating a ‘pick-up’ in pace for the current year.

No one was expecting the sudden turn of events which would drastically and dramatically upend the entire economic structure of the island nation.

The novel coronavirus, initially titled the nCoV-19 and later officially dubbed as the COVID-19 originated from Wuhan, China and made its way across the Asian continent into Europe and now the far West.

In previous occurrences where a viral pandemic became global; Maldives have always had survived without notable cases such viruses hitting its shores. While the Severe Acute Respiratory Syndrome (SARS) made waves of terror in 2001, and other viruses such as MERS or Ebola resurfaced; the island nation had limited possibility of danger.

The geographical location, and its entire geographical characteristics; being a completely detached country in such regard from other countries and with air travel being the only option of travel to the country for general population, viral contagions have always had little to no effect on the country.

But that was in the past and this time around, the island nation will experience a completely different turn of events.

The first positive case of the viral pandemic hurled the island nation’s government into a finding faster and efficient methods to decrease the impending financial detriment the public and businesses will face.

Which gave birth to the state’s Economic Recovery Plan; a multi-faceted policy with detailed set of plans in an effort to methodically reduce the worst impact case scenario.

To enforce and endorse this; the country’s national bank announced the moratorium which will see a temporary pause on interest and principal on loan installments for loans issued under personal, housing and businesses.

The focus here is on housing loans for which a deferment have been set by the country’s largest banking chain.

A six month duration in which building owners, landlords and real estate managing firms will have a half-year duration in which they will not be subjected to pay for the heavy loans they acquired to construct their respective establishments.

According to Maldives Monetary Authority (MMA), the private sector loans under housing category shows lending at MVR5,358.2 million in February 2020 and MVR5,334.5 million in January 2020.

On average the loans issued for housing for each month in 2019 were ranged between MVR4,900 million to MVR5,300 million.

Most of these loans for housing sector are ‘fresh’, meaning its debtors are still subjected to pay for the pending installments.

This is regarded as one of the primary reasons or attributions to hiked up rent prices on apartments, flats or such residential properties. The building owners or landlords are covering the expense through the rent collected from such properties in order to pay for the hefty loans.

However, a moratorium in place would mean there’s a period of deferment. A period where debtors are relieved from settling in their monthly installments on outstanding loans.

This was detailed out by the national bank as well, and as clear cut as it sounded; it also meant to provide a relief not just for the debtors who happen to be landlords but also for the tenants who are also facing the brunt of economic detriments.

To put this in a manner that would be comprehended by all; this is to say that by offering a moratorium period, the banks have provided a significant period of time for debtors to be relieved from monthly payments – for the announced six-month duration – and this in turn means that the landlords who happen to be debtors in this case, can reduce on the rental prices to ease out tenants as well.

A few notable cases have come up in recent weeks of landlords either exempting or slicing off rental prices for a duration of 2 to 3 months and a few cases of exemption for the moratorium duration.

However, the argument still stands if this is the case in every other property?

But as the current economic situation stands, there is no doubt that individual lives have been impacted along with local businesses.

Due to the inaction of the tourism sector, several resorts have closed down temporarily while more than 11,000 resort employees have been send off on no-pay leaves. There have been reports of massive lay-offs and redundancies in several companies amid the economic crisis, as well.

A sizeable portion of resort employees either reside or have immediate family members or close relatives residing in Greater Male’ Region on rent to which these individuals take charge in handling expenses.

But with most of them let go from their employments on unprecedented duration means no scope of income for a significant period of time; this will again rise the predicament of settling rental payments.

The tourism industry is not the only segment to face the brunt but every other economic sector as well, and many of the locals are currently facing issues with their salaries and allowances.

So much so, the Maldives Ministry of Economic Development have established a designated job center portal to lodge complaints related to employment issues amid the current crisis.

Recently, it was also announced the Maldives government will provide allowances for employees losing their jobs amid the current crisis for a 3-month period starting from April 2020.

This further provides evidence that several of the local work-force are currently facing the worst edge of the current crisis.

Perhaps, it is now more comprehensible to understand the reason for a moratorium from the country’s national bank; which also holds the largest customer base in Maldives, announced a significant period of loan deferment.

Meanwhile several other banks and financial institutions have followed suit as well.

It could be summed up to note, the moratorium has been placed as a means to provide relief not just for the debtors – in this case landlords, but also for the tenants who are currently struggling to make ends meet.

This could be what the moratorium is attempting to entail after all.