Madagascar - Bank - Financing for the economy

As in all countries affected by the pandemic, the health crisis had negative impacts on the Malagasy economy in 2020. The IMF is forecasting a recession of 11% to 3%. The impacts of the crisis are being strongly felt in the level of business activity and employment, including in the informal sector.

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Aid from international bodies

The World Bank is providing $75 million in mid-2020 to mitigate the impacts of COVID-19 and support the recovery. This financing will help fill a fiscal financing gap caused by the COVID-19 crisis while supporting key reforms to strengthen the effectiveness and transparency of the government's response to the crisis and lay the foundation for a sustainable and resilient recovery. This complements the Rapid Credit Facility from the International Monetary Fund (IMF), additional budget support from the Agence Française de Développement (AFD) and the African Development Bank (AfDB), and participation in the G20 Debt Service Suspension Initiative, bringing the total amount of emergency assistance to $476 million this year, equivalent to 3.11 trillion of GDP.

Miarina Credit

In mid-June 2020, the Ministry of Industry, Trade and Crafts (MICA) launched Crédit Miarina, a cash flow support mechanism for formal SMEs. This represents a reorientation of the Fihariana program in the context of Covid-19 for a total envelope of 11.5 MEUR. Miarina loans are granted via two local banks (BNI and BOA) at a rate of 9% for a repayment period of 24 months and a maximum amount of 69 kEUR, and intended for companies with a turnover of less than 1.1 MEUR and at least three years old. Since its launch, nearly a hundred companies have benefited from it, particularly in the trade, services and medical sectors.

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The development of remote banking

In Madagascar, disadvantaged populations or those living in remote areas are often excluded from the traditional financial system. Despite the challenging context of 2020, Madagascar's financial sector remains dynamic and resilient in the face of the crisis.

The banking rate, that is to say access to a bank account, among the adult Malagasy population barely reached 12% at the start of 2020, which makes the Malagasy financial sector one of the least developed in Sub-Saharan Africa.

Microfinance institutions are growing well, with a penetration rate of 30,401 T/T in 2016. However, there is a significant inequality between microfinance institutions in urban areas and those in neglected rural and remote areas. There is also growing competition between banks and MFIs, contrary to popular belief.

If MFIs are able to offer attractive loans (larger amounts and longer maturities) to their best clients, the latter could turn away from bank loans (which are less expensive and offer longer maturities). The risk is therefore to lock these borrowers into an exclusive relationship with the MFI (a "hold-up" effect), while these small businesses could benefit from borrowing conditions from banks that are more suited to their development. Further studies will need to analyze the extent to which these two markets (banks and MFIs) overlap and whether borrowers migrate from one to the other.

The objective of branchless banking is to increase the penetration of financial services offered by microfinance institutions in rural areas by developing the branchless banking system and reducing transaction costs for microfinance clients in rural areas through mobile phones.

The rise of Mobile Money
The Mobile Money service provides an alternative to Madagascar's low banking penetration rate. Responding to a real need, it has met with resounding success and continues to grow. Indeed, the number of subscribers has grown from 136,000 in 2010 to more than 4,640,000 today.
There are three operators offering mobile money in Madagascar: Telma with Mvola, Orange Money, and Airtel Money. The leading VISA payment platform has partnered with MVola. Thus, in early October 2020, the leader MVola launched, for the first time in the Indian Ocean, an International Visa Card accessible to all MVola account holders. Paying for purchases and bills, linking your account to your bank account, saving from your mobile phone, and instantly accessing nano credit have broadened the range of possibilities.