Building Inclusive Financial Sectors in Africa

(BIFSA)
Evaluation of Phase I of the Program (2005-2007) and Case Studies for
Projects Financed in Liberia, Togo and Madagascar
Summary

Madagascar
January 2009

Nathalie Assouline
Charlot Razakaharivelo
Dina Randrianasolo

IRIS Center, University of Maryland College Park

3106 Morrill Hall, College Park, MD 20743

MADAGASCAR SUMMARY

Context
For a period of 5 years in the amount of 4,080,800 USD, the PA/SNMF (Action Plans and National
Microfinance Strategies) was created as the result of contributions from the UNDP and UNEF intended to
carry out the SNMF Action Plan adopted in 2004. It is jointly financed by the UNDP (2,455,000 USD)
and the UNEF (1,625,800 USD). The UNDP provides financing for program activities and the UNEF
provides FRIF funds (1,000,000 USD) and technical support (CTR, regional technical committees) to the
CNMF (National Microfinance Coordination Unit) (625,000 USD).
The following expectations were established for the program at its initial conception:
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Strengthen and support the institutional framework of the microfinance sector

Develop partnerships and synergies, particularly for advocacy efforts.

Sustainable and viable MFI offerings of financial services and products with technical and
financial backing within an adapted legal and regulatory framework

Strengthen and develop bank-MFI relationships with an eye towards the integration of financial
markets

Conduct follow-up assessments.

The program framework was amended in 2007 and 2008 in order to integrate (i) the adoption of the new
Law 2005-016 on Microfinance; (ii) the guidance from the UNDP's new CPAP (2008-2011); and (iii) the
new objectives of the National Microfinance Strategy (amended in 2007 to align with the Madagascar
Action Plan), and adopted by the government in November 2008.
The National Strategy for Microfinance (SNMF) is based on the following objectives:
1. Improve the economic, legal, and regulatory framework for the harmonious and secure
development of the sector;
2. Sustainable and viable provision of adapted, diversified and increasing the number of products
and services, particularly in areas not yet covered by professional MFIs.
3. Organize the institutional framework so as to allow for proper sector structuring, effective sector
coordination and efficient SNMF operations.

Relevance
The microfinance sector in Madagascar has experienced rapid growth over the last few years, and the
trend has been accelerating since the implementation of the SNMF. New legal regulations and revived
competition have led to the increasing professionalization of the MFIs and a search for increasing
productivity. A number of roadblocks continue to exist (compartmentalization within the banking system,
a poorly adapted judicial system, subsidized credit programs, the isolation of rural areas, etc.).
In this context, the program strategy founded on an articulation between actions taken at the macro level
(support from the legal system, advocacy, national MF strategy, and coordination of investors), the meso
level (implementation of coordinated interventions in the sector, distribution of sector data, enhancement

of professional representation, contribution to the expansion of national expertise, etc.) and micro level
(MFI support funds) is relevant.
This strategy indeed responds to the sectors developmental constraints identified in the 2003 assessment.
Several of these weaknesses have been reduced over the course of the last five years, particularly through:
(i) the adoption of a national microfinance strategy; (ii) improvement in the legal and regulatory
framework; (iii) improved coverage of the needs of the territory (two regions remain without coverage in
2008); (iv) improvement in the MFIs professionalism and financial autonomy (most of which have MIS,
business plans, and are audited, etc.1.)
However, the results of the initial assessment of the sectors strong points seem to have been optimistic,
particularly regarding the following points:
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The Government's clear desire to make microfinance a tool for the sector's active development;

The existence and operation of two dynamic professional associations;

Investors strong interest in supporting the sector through partnerships.

However, it is precisely these three points that reveal the programs weaknesses.
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The State has yet to agree (from the programs inception to the present) on the national-level
coordination of microfinance, or the autonomy (adequate connections) and technical capabilities
(appointment of appropriate personnel) required to assert its role, including within its own
ministry.

Professional associations have not yet been formed and lack the dynamism necessary to support
coordination efforts. They have barely been able to fulfil their role as an intermediary and an
interface between the CNMF (National Microfinance Coordination Unit), the CSBF
(Commission for the Supervision of Banking and Finance) and the MFI members, due to the lack
of adequate support and partnerships.

Traditional microfinance investors already engaged in Madagascar (EU, the French Development
Agency, and the World Bank) have essentially completed their on-going programs that are part of
the SNMF. Few other investors have been mobilized in this context to date (with the exception of
the MCA program, which has adopted the Investment Committees methodology).

Effectiveness
Results of the Program in terms of making the Legal, Regulatory and Strategic Framework
operational
Making the legal and regulatory framework:
At the end of 2008, out of a total of 39 structures surveyed by the CNMF 2, 11 MFIs were approved by the
CSBF as being in compliance with Law 2005-016.

1
2

According to the SNMF assessment reports.

2008 Annual Report inclusive finance program MAG 00609-31. January 2009.

The CNMF has primarily acted within the context of identifying the structures that operate in
microfinance on the territory of Madagascar and the distribution of MFI texts through training and
information sessions.
In the short term, it may be useful for the CNMF along with the other professional associations to identify
the MFIs that need special assistance in establishing license application files in order to fund the
necessary support. Prolonging a situation where the majority of MFIs are operating illegally is detrimental
to the sector as a whole and its clientele. Continuing the training of the MFIs in understanding the laws
and instructions, and the conditions and consequences of implementing the CRM, through collaborations
between the CNMF and the professional associations remains an imperative.
Revision of the national microfinance strategy:
The scheduled SNMF assessment was conducted, bringing the SNMF into alignment with the MAP
objectives. The issues of the 2008-2012 SNMF were brought up in the context of the presidential
dialogue and a schedule was drawn up for their execution. The updated and budgeted SNMF 2008-1012
Action Plan was approved by the Government Council on November 11, 2008.
Actors in the microfinance sector in Madagascar seem to have not yet fully appropriated the SNMF. The
SNMF could benefit from the expansion of three specific areas: (i) improved dialogue and involvement of
sector actors, particularly with the MFIs and the technical and financial partners; (ii) increased
transparency as to its effectiveness and the measurement of its effects by an analysis of reliable statistical
data that could be used to establish reference data and pertinent results indicators; and (iii) the
identification of blocking factors pertaining to the business environment (judicial environment, taxation,
regulatory limitations (ceilings), interest rates, etc.).
Results of the program in terms of strengthening transverse structures (CNMF-APU)
Support for the CNMFs in carrying out its operations:
The reinforcement of the institutional mechanism for sector coordination, in this case the SNMF Piloting
Committee and the CNMF as Executive Secretary, is one of the programs principal issues.
The roles of the Piloting Committee (PC) and the CNMF remain poorly understood by the various actors
in the sector who at this point find it difficult to assess the contributions, primarily because of the low
level of the CNMFs achievements (database, establishment of multi-investor funds, studies, training,
etc.), and because of its positioning within the Ministry.
Initiatives were undertaken in 2008 to increase the CNMFs efficacy, intended to strengthen its
organization (institutional and organizational study of the CNMF, strengthening CNMF staff).
In 2009, a plan to strengthen CNMF capabilities and a schedule of progressive transfer of skills between
the technical support team and the Ministerial team will be drafted.
The implementation of scheduling and reporting concerning all CNMF activities, according to the various
funding sources, will help in measuring the effectiveness of its interventions, assessing their consistency
and distinguishing the respective levels of responsibility between the program team and the ministerial
team.
The implementation of a sector database:

The creation of a statistical database for the sector has been a program goal since its inception.
By the end of 2008, the work of selecting a system supplier firm had been done and should allow it to
begin working in 2009.
A rapidly operational database should have played a significant role in CNMF communications with the
MFIs and with the technical and financial partners, particularly in mobilizing funds for the SNMF. It
would have helped to emphasize the need for improved MFI transparency (at a time when MFIs are
withdrawing due to concerns about the competition).
Redundant reporting requirements for the MFIs should not be a concern since it was designed to align
with the CSBF (database and risk assessment center).
The implementation of a single professional association of MFIs:
Until now, the program has taken limited actions to support these professional associations. The support it
has provided has primarily taken the form of signing collaboration protocols to organize training sessions
or conferences.
It wasnt until 2008 that specific actions were taken to support the creation of this professional association
by (i) conducting a study (pending UNDP approval) for the implementation of a single professional MFI
association; and (ii) in 2009, drafting a plan to support the capacities of the professional association and
the MFIs, with the goal of establishing a sustainable training system.
The two associations have yet to agree on the terms of their consolidation. This penalizes the MFIs, faced
with a changing microfinance landscape (new regulations, new competition, establishment of a risk
assessment center, etc.) as well as the CNMF, which needs this interface with the MFIs in order to
properly play its role as sector promoter and coordinator.
It would be beneficial to support the future single professional association through (i) its participation in
drafting the annual scheduling of CNMF activities; (ii) support in the creation of its business plan that
provides for it to generate its own resources; and (iii) decreasing financing for the operations of the Single
Professional Association on this basis.
Results of the program in providing adapted financial products and services
Studies of unmet needs:
Four studies were conducted within the framework of the program to extend financial services in 4
regions that are underrepresented in microfinance services: the Anosy and Itasy regions, and the two new
regions where the UNDP is concentrating, Vatovavy and Fitovinany, and Atsimo-Andrefana 3. These
studies produced results in 4 regions (except in Itasy): (i) creation of the MIF FIVOY in Anosy
(accompanied by the FRIF); (ii) identification of potential MFI partners in the 2 other regions (Vola
Mahosa and Tiavo) and their need to reinforce their capacities (Vola Mahasoa rating and studies
underway for Tiavo).

Study of the financial needs in the two regions.

Other studies currently in progress or scheduled for 2009 will address issues that are impediments to the
development of microfinance services (refinancing of MFIs, weaknesses in the mutualist systems, the
causes and solutions to the decreasing quality of MFI portfolios in Madagascar, the condition of the MFI
ACOA premises, and the assessment of the Tiavo network).
These studies reflect the findings reported in the assessment of Madagascar's microfinance sector. It is
unfortunate, however, that no studies aimed at sharing innovative technologies and tools were scheduled.
The UNDPs choice to develop its MFI support activities in two regions of concentration is rooted in the
approaches and needs of other UNDP programs in these regions. Establishing this type of program within
the Inclusive Finance program poses a problem for the consistency of the approach and the clarification
of the mandate of the CNMF, which is the agency that carries out the program and/or the agencies for the
coordination of the related sector policies and programs.
MFI training sessions:
The training sessions organized within the framework of the program have focused on pertinent but rather
limited themes (such as delinquency measurements and audits, calculating and setting interest rates, chart
of accounts for credit and regulatory establishments and the criteria for good governance of an MFI).
Training activities, which a priori are independent of the CNMF, are restricted by the poor offerings of
training opportunities in microfinance.
The Inclusive Finance program may find it necessary to rapidly organize mission-critical training
programs (complying with the legal and regulatory framework, for example), in order to respond to a
need that is shared by all MFIs, but this is not its role.
Within the program framework, it may be necessary for the CNMF to work with the appropriate partners
(professional association, consulting and training firms, CAPAF, etc.) and the necessary outside expertise,
to consider establishing a sustainable training system for professionals in the field of microfinance.
The dissemination of innovative financial products and services (dissemination of the CAE, Credit with
Education):
Until now, the program's efforts to distribute products and services have translated into the dissemination
of the Credit with Education product through the establishment of a specific fund in 2006.
In 2006 and 2007, the amount granted reached 1.165 billion MGA (approximately 582,500 USD), for 8
MFIs4, 48% of which came from lines of credit. The maturity date for the entire line of credit was June
30, 2009.
The results of the program from September 2007-September 2008 lead to the conclusion that these funds
have had a positive effect on business growth with regards to impoverished women:
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1,132 credit unions (+30%);

16,416 members (+31%);
523.9 million MGA in savings outstanding (+74%);

OTIV ZAM, Tana, Diana, Sava, Haingonala, ODDER, AECA, CECAM

1.49 billion MGA in loans outstanding (+80%), with slightly worsening portfolio performance at
4.67% in arrears compared to 3.85% one year previously.

The mission raised the issue of the relevance of an approach based on artificially creating a demand for
financing for a type of product that, moreover, imposes serious methodological restrictions on MFIs. A
request for expressions of interest from MFIs seeking to increase their female clientele could have been
issued, allowing the MFIs to choose the methodology and selecting the MFIs specifically based on their
capacity to develop the clientele.
Funding came from the UNDP, but was not integrated into the FRIF, although one of the FRIFs
objectives was to act as leverage for funding from other technical and financial partners. What will
become of these pledged funds is still uncertain to this day, all the more so since the UNDP revised its
strategy in 2008, deciding to focus its microfinance interventions in two regions.
The Institutional and Financial Support Fund (FRIF):
Out of the12 declared requests, a total of 5 MFIs received funding (SIPEM, ADEFI, FIVOY, CECAM and
MICROCRED), including 2 S.A. corporations and 3 mutuals.

A total of 2,082,033,000 MGA (approximately 1,040,017 USD)5 was granted. 45% of this
amount came in the form of subsidies (operations and investment), with the remainder as
medium-term loans over 5 years at market conditions6.
MFI requests are approved by an Investment Committee, on the basis of an analysis conducted by the
program and subject to lack of objection from the Johannesburg office. MFI commitments are governed
by performance contracts.
The allocated subsidies accompanied the development of SIPEM and CECAM management information
systems, and facilitated the opening of a MICROCRED office in Tamatave and approximately 7 new
FIVOY offices. Preliminary proceedings are being held for three requests, but no additional funds are
available to respond to requests.
The FRIF methodology has the advantage of granting need-based funding to MFIs backed by
performance contracts, in return for a wide range of instruments (subsidies/loans) according to a
transparent instruction process within the framework of a Committee open to other actors in the sector
(MAEP, AP, BF, CNMF).
The FRIF is primarily limited by the meager amounts pledged which are limited to the UNEFs
contributions. Other investors have yet to take part.
The limited resources allocated to the FRIF funds prevent the FRIF from playing a decisive role in the
supported structures. In this case, FRIF funds presented an opportunity, but did not define the scheduled
activities (extension for MICROCRED, growth in loan activity for ADEFI and SIPEM, computerization
for CECAM and SIPEM). The relevance of allocating funds may be re-examined in the future, in order to
target the funding of innovations and experiments based on the needs expressed by MFIs and to leverage
the spread of the best practices for the entire sector.
In Madagascar, the Investment Committee serves mainly as a registration office since only cases that have
been reviewed and approved by the support unit and the UNEF are submitted to it for opinion. No
5
6

1 USD = 2,000 MGA

12%

information has been presented on the performance of the investments made or on the funds finally
disbursed, due to the lack of progress reports on the investments made (amounts, nature, subjects), and
the performance of the supported MFIs (who are however monitored by the Johannesburg office).
The Investment Committees role should be re-examined in relation to the allocations that the investors
are ready to grant it. Rather than being a decision-making body that has no resource management
responsibilities (and therefore incurs no risk), the Committee could serve as an authority that examines
how the investments align with national strategy objectives.