Housing Development Finance Corporation Plc. - Maldives The project entails the privatization of Housing Development Finance Corporation Limited (HDFCL or the company) in the Republic of Maldives, which is currently 100% owned by the Government of Maldives (GoM). IFC intend to invest up to $1.8 million as equity of up to 15% stake, in, along with up to $10 million of long term debt to support the growth of the privatized company.  After privatization, the government ownership in the company would be reduced to 40% or below. The investment would be supplemented by an IFC Advisory Services package to assist HDFCLs smooth transition from a government owned company to a private-sector firm. Housing Development Finance company of India (HDFC) and Asian Development Bank (ADB) are also invited to participate in this privatization project. As part of the privatization program, the GoM has also planned to list the company on the Maldives stock exchange.  The Maldives, with a population of about 300,000, is an island nation consisting of 20 atolls which encompass a territory of about 1200 islands stretching over of an area of 90,000 sq km in the Indian Ocean. About 200 islands are inhabited by local communities. After the 2004 December tsunami, the population on Male, the Capital island with a land area of 1.9 sq km, has surged from below 80,000 to over 110,000, putting an immense pressure on the existing 8,000 housing units. With 58,000 inhabitants per sq km on the Island and an average of 14 inhabitants per dwelling unit, Male is undoubtedly one of the most densely populated and congested places on earth.   To ease the housing shortage and reduce the congestion in Male, the GoM has reclaimed an island, Hulhumale, about 2 km from Male, and planned to build as many as 8,000 new housing units and commercial facilities there. HDFCL, the first and only housing finance company, was established by the GoM in 2004 to provide long-term loans to residents who are eager to migrate to the new island. However, despite the demand for housing finance, the company has not been able to extend any new loans over the last year due to funding constraints. The company had run out of the initial equity funding invested by the government, and had not been able to borrow from commercial sources without the full government guarantee. The GoM, for prudent fiscal reasons, has decided not to continue the practices of providing credit guarantees to the company. After a period of hiatus, the GoM has invited IFC, ADB, and HDFC of India, to help privatize the company, and to list the company on the local stock exchange. The development impact of this project would be:  - Development of commercially viable, long-term sustainable housing finance market in Maldives:  The company extends housing finance, and therefore offers an opportunity of home ownership for middle and lower-income borrowers on a commercially viable, long-term sustainable basis. While HDFCL had been a significant source for housing finance in the country; in the absence of long term debt/equity financing, it is unable to meet the existing demand from creditworthy clients.  The project will help jump start the housing finance market to assist a majority of the population in the country to obtain housing finance to realize their dreams of owning their homes.  - Privatization and institution-building of the countrys first private-sector housing finance company:  HDFCL has not been able to develop its business and provide relief to the severe housing shortage in the country. It ceased operations due to lack of access long-term commercial funds and more fundamentally, due to its complete reliance on government guarantees which could not be sustained. A successfully privatized company, operating along the principles of being commercially viable and long-term sustainable, would generate great and sustained relief to the housing shortage situations in the country, improve the quality of life for many citizens, and contribute to creation of a vibrant financial sector of the country.   - Development of housing related SME/supply industries: Through extensive linkage effects, the housing industry will contribute to the development of SMEs that supply labor and materials for the construction and improvement of homes, since most of the construction activity is conducted through contractors and the informal sector. Sufficient demand for the supplies provided by the informal sector would prompt development of such segments in the economy into more formal and better managed companies leading to a more professional construction sector.  - Support the development of a new urban center:   GoMs investment in Hulhumale and its efforts to spread the capital island thereby easing the pressure on Male, has not succeeded so far. This has primarily been due to the lack of housing finance for individuals, which has led to less than 5% of Hulhumale island being built and occupied as of date. Supporting HDFCL would allow for further development of Hulhumale by facilitating migration to the Hulhumale, creating economic opportunities in the newly developed projects and by extension, improve living conditions in Male.