The SME Development Finance Corporation (SDFC) awarded relief loans to small business under the government’s COVID-19 recovery plan without considering their ability to repay, the Auditor General’s Office said.
Last year, the finance ministry, in collaboration with the SDFC, launched the COVID-19 Recovery Scheme, which is aimed at small and medium enterprises, self-employed and freelance workers, as part of the government’s Economic Relief Package.
The program was introduced through the SDFC’s “Viyafaari Ehee” lending initiative for small businesses with less than MVR 10 million in revenue the preceding year. Such businesses may borrow up to MVR 500,000, while freelancers could borrow up to MVR 30,000.
According to the AG Office’s performance audit of the loan scheme, MVR 343.3 million in loans were issued to small businesses up to April, with MVR 19.8 million going to self-employed and freelance workers. The audit report noted that 91% of the MVR 400 million approved for the loan plan was distributed.
Since the major goal of the loan effort is to offer three months’ salary to employees and other overhead costs, the audit report showed that 66% of the businesses who participated in their survey had reached the goal.
But the AG Office stated that the agreement inked between the finance ministry and SDFC, which violated monetary authority norms, did not contain a check on the enterprises’ ability to repay the loans prior to issuance.
Furthermore, the audit report highlighted that, with the SDFC’s loan issuance limits significantly eased, repayment of the initiative’s loans is fraught with uncertainties.
The report urged the finance ministry and the SDFC to include in the agreement clauses linked to monetary institutions as determined by the Maldives Monetary Authority, as well as a way to determine consumers’ financial capacities based on existing regulations imposed by monetary institutions.