Audit Finds 41 percent of SDFC Loans Classified as Non-Performing Assets

The Auditor General’s Office has raised concerns over the financial management of the SME Development Finance Corporation (SDFC), after a compliance audit revealed that 41 per cent of the loans issued by the state-owned lender have been classified as non-performing assets.

According to the report, a total of 1,574 loans were issued to 1,428 applicants as of 31 December 2023, with outstanding loans amounting to MVR 1.35 billion. Of this figure, 41 per cent – equivalent to MVR 554 million – was overdue by more than 90 days, resulting in the loans being designated as non-performing assets (NPAs).

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The audit also noted that between 2019 and 2023, SDFC disbursed MVR 878 million to 827 borrowers, with overdue payments contributing an additional MVR 151 million to outstanding obligations.

MVR 107 Million Written Off, Only MVR 12 Million Recovered

The report revealed that out of the MVR 554 million owed, MVR 107 million had been waived in line with the bank’s internal policies. Recovery efforts have so far secured only MVR 12 million.

Of the 389 loans classified as non-performing and listed in the recovery registry, 116 were permitted to be repaid in amounts of up to MVR five million. From these, MVR 289 million remains unpaid, while MVR 70 million is overdue beyond the agreed deadlines.

Audit Observations

The Auditor General’s Office attributed the high level of non-performing loans to weak assessment of borrowers, insufficient monitoring mechanisms and shortcomings in recovery procedures. The audit also identified deficiencies in internal controls and inadequate documentation in the loan approval process.

Recommendations

To address these concerns, the Auditor General recommended that SDFC:

• strengthen guidelines for loan disbursement;
• take legal action against defaulters in line with its recovery manual;
• revise collateral and related policies to reduce defaults;
• and consult with the government on how to proceed with unrecoverable loans.
• The Ministry of Finance was also advised to review the impact of measures such as interest waivers on the bank’s financial stability.

Future of the Bank

Despite the challenges outlined in the audit, the report noted that SDFC’s financial performance improved in 2024, with the company recording a profit of MVR 45.2 million – an improvement compared to the previous two years.

It also highlighted that the government has since sold its shareholding in SDFC to the Bank of Maldives (BML), making the lender a subsidiary of the country’s largest commercial bank.

The Auditor General cautioned that unless significant reforms are introduced, the high proportion of non-performing loans could weaken SDFC’s long-term sustainability and its ability to fulfil its mandate of supporting small and medium-sized enterprises in the Maldives.