PROJECT INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Report No.: AB3398
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Maldives Mobile Banking Project
SOUTH ASIA
Payment systems, securities clearance and settlement (90%);
Banking (10%)
P107981
Republic of Maldives
Ministry of Finance and Treasury
Ameenee Magu
Maldives
Tel: +960-322343
Fax: +960-324432
[email protected]
Maldives Monetary Authority
Maldives
[email protected]
Environment Category
Date PID Prepared
Date of Appraisal
Authorization
Date of Board Approval
[ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined)
December 12, 2007
December 20, 2008
March 28, 2008
1. Country and Sector Background
The Maldives is a small economy comprising a chain of Indian Ocean islands spread over a
distance of 900 kilometers. The total land area is less than 300 square kilometers and covers
about 26 geographic atolls. The estimated population in the Maldives is about 300,000 and the
country has 1,190 islands, of which 200 are inhabited. Of these islands, only 33 have a land area
greater than one square kilometer.
The GDP growth averaged 7.5 percent over the past two decades, raising per capita income to
about US$ 2,800, the highest in the region and moving the Maldives well into middle income
status. After contracting by 4.5 percent in 2005 due to the tsunami induced fall in tourism
arrivals, the economy rebounded by 19.1 percent in 2006, and appears to have remained robust
so far in 2007. Poverty rates, as measured by the headcount ratio, have fallen steadily, from 40
percent in 1997, to 28 percent in 2004, and further to 16 percent in 2005, continuing to fall
despite the devastation of the tsunami. Other human development indicators, such as infant
mortality, maternal mortality, or educational attainment, have registered similar improvements,
and the Maldives is on track to meet most of the millennium development goals (MDGs).
The outlook for economic growth in 2007 is favorable with an estimated growth rate of about 7
percent. The main growth sector (27 percent) – tourism - continues to perform strongly, returning
to the pre-tsunami level of 2004. The country expects the tourist arrivals to grow at around 6-9
percent. The fisheries sector which is the other significant contributor to GDP (6.3 percent)
remained buoyant in 2006, with the total fish catch effectively remaining at the record high level
of 2005. The growth of the other industries such as construction and transport are also dependent
heavily on tourism. Therefore, the Maldivian economy is not likely to encounter a major problem
of achieving the projected growth. However, both sectors are susceptible to external shocks.
In the 2006, Investment Climate Assessment (ICA) of the Maldives the single largest
impediment to private sector development identified was access to finance (66 percent), followed
by cost of financing (62 percent). This is rare in South Asian countries where the main critical
investment climate impediment is almost always infrastructure.
The lack of basic financial services perpetuates poverty and vulnerability. The banked population
in Male’ is about 65 percent and about 30 percent in the islands. Most people in the Maldives
remain without a safe place to save money, and those working away from their home islands find
it expensive and time-consuming to send money to family. Insurance products are unavailable to
most in the atolls, and the nearly universal use of cash means that people’s basic earnings are
vulnerable to loss, theft and natural disasters such as the recent tsunami.
2. Objectives
The objective of the project is to significantly increase the use of banking system transactions for
effecting or receiving payments for labor, goods and services nationwide through the
implementation of a national inter-operable payments system that facilitates access to financial
services and allows users access to any bank account using any mobile phone operator and
cashing through any agent.
3. Rationale for Bank Involvement
The proposed project has been undertaken at the express request of the Government of the
Maldives after being exposed to somewhat similar Mobile Banking programs in other parts of
the world (supported by CGAP and the World Bank). This has been largely developed by the
Maldives Monetary Authority with the support of the CGAP’s Technology Program.
IDA funding for this project is particularly appropriate, given its experimental nature, potential
for replication, and national scale. As envisioned, the project would be a world’s first in creating
a national payment and banking system in which mobile phones and local banking agents are the
main payment instruments and devices. Although this approach remains experimental,
particularly at a national scale, it is the approach that is the best option and cost effective means
for financial services to reach all the people in the Maldives, given the country’s challenging
geography, thin financial sector regulatory framework, and relatively high mobile penetration.
In this sense, the project may be an exemplar for countries with some of the same characteristics
in South Asia (e.g. Afghanistan, Bhutan), as well as across Sub-Saharan Africa and other parts of
the world.
The project is also a valuable opportunity to collaborate across the Bank Group with IFC, which
is an investor in the privately-owned mobile operator Wataniya, and is helping the MMA
develop a Credit Information Bureau. Wataniya is likely to be an important partner in this
project, and the MIPS may be designed to feed transaction data into the proposed Credit
Information Bureau as a source of information about borrowers.
The Government of Maldives has requested for retroactive financing to initiate the preliminary
work.
4. Description
The project has two main components:

Component 1 - The creation, establishment and operationalization of the Maldives
Interoperable Payments System (MIPS) : (US$ 6.00 million). The payment system is a
single currency system operating in Maldivian Rufiyaas (MRF) that will be capable of
interoperating with all local mobile network operators and integrating all the banks. The
system will offer a set of mobile telephone based accounts that include: (i) Mobile payment
accounts, (ii) Mobile agent accounts, (ii) Mobile card accounts, (iii) Mobile loyalty, (iv)
Mobile airtime reseller accounts, and (iv) a Customized account type - for introduction of
new banking/payment products in future.
The payment system will enable subscribers to transfer funds to and from bank accounts held
in any bank to and from the telephone based accounts. The telephone accounts will be
accessible from the handset. New customers will be able to enroll through the mobile handset
and withdrawal and deposit functions will be performed by a network of agents. The project
aims at having at least one agent in each of the 200 inhabited islands, 100 resorts, 30-40
industrial/agricultural islands, and in Male. Each agent will have a direct contractual
relationship with the bank for which he/she performs cash functions. For the purpose of
supporting the “Know Your Customer” qualification the system will be integrated with the
National Registration System for validation of subscriber identity during the enrolment
process.

Component 2 - Building capacity so that the interoperable payments system can work
well; designing and implementing a legal and regulatory framework and supporting a
promotion/public education campaign – (US$ 1.00 Million) Capacity must be built in
several ways to ensure that the system is properly regulated, works for clients and is well
managed. It will be necessary to develop and implement regulations to cover all aspects of
the system as well as build the capacity of regulators to supervise the system. To help ensure
that people and businesses understand the benefits of the system and adopt and trust it, a
promotion/ public education campaign will be conducted. Finally, a mobile phone banking
unit will be established under the MMA that has the capability to implement MIPS. At the
same time, this unit will be established keeping in mind the longer term objective of
transitioning into a competent, viable MIPS Business Unit after transaction volumes reach a
reasonable level.
CGAP will provide parallel funding to cover the costs of: (i) specialized external technical
expertise required to design and implement the system including employing a Technical Advisor
who will report to the MMA and assist the Project Director to lead and manage the development
of the project from the beginning as well as put in place the system and the team for the MIPS
Business Unit; (ii) developing a road map for all the legal and regulatory work that is to be done
and drafting the framework regulation; and (iii) assist in conducting market research and impact
studies.
5. Financing
Source:
BORROWER/RECIPIENT
International Development Association (IDA)
Consultative Group to Assist the Poorest
Total
($m.)
1.35
7.70
1.50
10.55
6. Implementation
Since this project is carried out on a national scale, the MMA will lead this initiative. Thus the
MMA has set up a Project Steering Committee (PSC) chaired by the Governor with all key
stakeholder participation. In addition, the MMA has also setup a Project Advisory Committee
(PAC) which will bring in all stakeholders; public and private. The proposed PSC will provide
overall policy guidance and direction. Given that some of the skills required for this initiative
will not be available in the country, they will be sourced internationally. Wherever possible,
local expertise will be used in the project team and the international technical experts will
provide capacity building and transfer of knowledge to the local project team.
7. Sustainability
From the conceptual stage the MMA has been actively involved in this project. In addition, they
will be appointing a project technical team who will be groomed by the international technical
experts to carry out the functions of the proposed project unit and MIPS. In addition, this unit
will function as a separate cost center to ensure that it function independent of the MMA. The
MMA at the outset itself has brought in all the stakeholders into the process.
8. Lessons Learned from Past Operations in the Country/Sector
The work CGAP's Technology Team has been doing on branchless banking and on mobile
banking in particular underscores the following key success factors: (i) ease of use of the user
interface; (ii) communicating clear benefits from the service to potential users, especially as
regards savings products (where take-up generally has lagged behind bill payment and
remittance services); (iii) ensuring security of communications and transactions, and allaying
public concerns in this regard; (iv) providing clarity to agents on the economics of agent service
provision and ensuring adequate returns for them, to avoid undue turnover of agents; and (v)
making account opening requirements work for the poor. All these aspects have been and will
continue to be carefully considered through the design stage of this project.
9. Safeguard Policies (including public consultation)
As the project does not involve any land acquisition or resettlement, and as it will not affect
Indigenous Peoples, no safeguards issues are expected to arise, and no social safeguards policies
are triggered.
The Republic of Maldives has stringent environmental laws which are relatively well enforced as
the country's economy is dependent on tourism which is directly tied to the country's pristine
ecology. This project would not result in any adverse environmental impacts due to the nature
and the scope of the project and activities financed under the project. There will be no
construction of buildings or any other form of civil works undertaken from the proceeds of this
project. Therefore, there will be no environmental safeguard issues arising as a result of this
project and no safeguard policies are triggered. The project has, therefore, been assigned as a
Category C project with regard to safeguards.
One risk from the social development perspective is related to the use of the proposed system by
poor and uneducated people. To that effect, the project will ensure that a legal and regulatory
framework is in place for the protection of customers. In addition, an awareness raising
campaign will be organized to sensitize end-users to the novelty of the proposed system.
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OP/BP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP 7.60)*
Projects on International Waterways (OP/BP 7.50)
Yes
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No
[X ]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
[X]
10. List of Factual Technical Documents
1. Developing a National Banking and Payment System with Mobile Phones: Vision Document
and Project Framework – developed jointly by CGAP and the Maldives Monetary Authority,
December 2006
2. National Mobile phone Banking System : Jenney Hoffmann CGAP – June 2007 .
3. Aide Memoire of the Joint CGAP- World Bank Preappraisal mission- August 8-12, 2007
4. Maldives Mobile Banking Project “Straw man”. CGAP Discussion Paper, October 9, 2007.
5. The Maldives : Sustaining Growth and Improving the Investment Climate- World Bank,
2006
*
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas
11. Contact point
Contact: Sriyani M. Hulugalle
Title: Senior Economist
Tel: 94-11-5561307
Fax: 94- 11-2440357
Email: [email protected]
Location: Colombo, Sri Lanka (IBRD)
Contact : Stephen F. Rasmussen
Title: Lead Economist
Tel: 92-51-9090216
Fax: 92-51-2279649
Email:[email protected]
Location: Islambad, Pakistan (IBRD)
12. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: [email protected]
Web: http://www.worldbank.org/infoshop