Default, insolvency and bankruptcy - Maldives style?

‘Default’, ‘insolvency’, ‘bankruptcy’ – these words may sound familiar to you. But if you are to ask your Majlis member or a policy maker in the present or the previous government, chances are not many people would even bother to raise an eyebrow. Proof? It’s on BML’s audit report and Finance Ministry’s website – the delinquent borrowers of BML and the list of willful defaulters of Treasury loans. Among them are former ministers, members of our parliament, senior members of former and current government and a lot of other ‘honourable’ people in this country. We gave them millions as ‘loans’ – sorry, ‘gifts’ --- a loan, by definition, is something you have to pay back.

If I understand correctly, ‘default’ is a debt that a debtor is required to pay but has not paid and “insolvency” generally means that the debtor is unable to pay the debt. Although there are variations in the way insolvency and bankruptcy are treated in different countries, usually in most countries, following a petition for insolvency or bankruptcy, a court makes a ‘bankruptcy order’ or a ‘winding-up order’. The assets of the debtor are then seized and auctioned off and in the case of commercial entities bankruptcy proceedings are begun. Doing this is invariably linked to the very survival of the banking system.

If my childhood memory serves me right Itha Naseer, Finance Minister Ali Hashim’s late father D.I.K, Bangi Adam Fulhu, Onoda Zahir and several others were among the many ill-fated Maldivian businessmen whose assets were seized and forced into liquidation to settle off their debts. A few years ago, on a tour of northern and central atolls, I met a number of small borrowers of BML who were forced into liquidation by the bank. Back then, I saw it as perfectly normal as BML was only doing what all banks are supposed to do. But today, I’m utterly saddened to know that those fishermen and smalltime backyard farmers, desperately trying to eke out a living under very difficult circumstances, were forced into liquidation only to feed the insatiable credit appetite of 12 of our oligarchs – at a whopping direct cost of over a third of our GDP!

I’m not advocating for liquidating Fonaddoo, Sultans of the Seas or Villa Group for their non-performing BML loans; and I’m not campaigning for locking up Adam Zahir, Umar Zahir and others for their willful defaults of Treasury loans. I know that our legal system, fraught with problems, is inadequately equipped to deal with financial crime and I also know that the new government is still in the reconciliation mode. But, to me, that’s not an excuse to give a free reign to these unscrupulous people. If we are to extirpate this crookedness from our financial sector and if our banking industry and the economy are to survive, timely punitive action on ‘default’ is imperative. Inability to do so is tantamount to a free bequest of whatever little resources still remaining with the 99 percent of the people, to the obscenely rich less than 1 percent.