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Microfinance in Madagascar

Last Updated: February 2007
IDA at Work: Microfinance - Microfinance in Madagascar Boosts Small Clients', Women's Savings

Challenge

At the start of the 1990s, all of Madagascar’s banks were state-owned and failing. State banks had abandoned their original mandate of financing small clients. Although liberalization in the following decade revived the bankrupt financial sector, the introduction of commercial banks did not properly meet the needs of poorer clients.

Approach

In 1993-97, a pilot project established networks of saving and loans associations in two provinces. The Microfinance Project, approved in 1999, scaled-up this effort, improving the existing networks and expanding to additional provinces. Because research shows that women make both better borrowers and better savers, and because access to credit helps empower women, the project has a sub-component with innovative programs designed to ensure women’s participation.

Results

Access to financial services by low-income populations grew significantly in the last six years. More than 150,000 people (45 percent of them women) are active members of financial cooperatives active in four of the country’s six provinces.

Highlights:
- The number of financial cooperatives increased to 150 in 2006, from 47 in 1999.
- Membership in microfinance networks increased from 30,000 to 159,430 clients in six years. Women’s membership increased from 15 percent in 1999 to 45 percent in 2006.
- Credit granted reached US$7.3 million. Average loan balance doubled from US$150 to US$311 in six years.
- Total savings reached US$11.1 million. Average member’s savings increased from US$20 to US$70 in six years.
- A financially viable network: Operational self-sufficiency (revenues covering capital and partly operating expenses) exceeded targets and reached an average of 133 percent.
- The project is part of long-term financial sector reform and has already built the legal and regulatory framework for an emerging microfinance industry.

Contribution

- US$16.4 million (out of total US$20.4 million costs).
- Long-term engagement with the government on financial sector reform.
- Developed a new approach which emphasizes savings rather than lending and which is being replicated in other countries.
- New microfinance law was enacted as well as revised Central Bank instructions and prudential regulations. A microfinance supervisory unit at the Central Bank has been established and is functional.
- Training of 600 people. Before the project, few Malagasy had formal training and could properly manage a microfinance institution.

Partners

The United Nations Capital Development Fund, Canada’s Development International Desjardins and the European Commission.

Next Steps

This project is the first part of a program designed to build a viable and sustainable microfinance industry over 15 years. Because reform and institution building take time to achieve and require sustained support, subsequent projects will ensure that IDA financing and technical support are available until the microfinance institutions are fully operational and self-supporting.

The project demonstrates that a savings-based approach with grass roots orientation can be more sustainable as a means for delivering rural financial services than a credit-only approach. Donors such as Millennium Challenge Account, UN Development Programme (UNDP), Agence Française de Développement, the African Development Bank and the European Union are preparing a financial sector project that would include a microfinance component building on this project.

Learn More

Microfinance Project (1999-2007)
Project documents Text-only factsheet


For more information, please visit the Projects website.



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