Madagascar Moves to Boost Regulatory Compliance for Fintech
As Madagascar continues its journey towards economic recovery and increased financial inclusion, the need for regulatory compliance in the fintech sector has become a pressing concern. The World Bank’s Madagascar Financial Inclusion Project has identified digital financial services as a key driver of financial inclusion, but the country still faces significant challenges.
The Challenges of Fintech Adoption
According to the project, only 18% of Malagasy adults had accessed formal financial services in 2017, with significant gaps between men and women, urban and rural areas. However, fintech and digitization of financial services have the potential to lower costs, address information asymmetries, and increase speed and accessibility.
Limitations to Fintech Adoption
- Lack of access to quality internet technology (4G/5G, broadband) and electricity (only 33% of the population has access)
- Significant portion of the country’s population lives in rural areas with higher poverty rates
- A quarter lacks formal identification
Efforts Towards Financial Inclusion
To accelerate economic recovery and inclusion, financial institutions are digitizing transactions to meet urgent needs such as paying for health services, water, light, or receiving wages and social benefits at low cost. Telcos in Madagascar have already opened millions of accounts, and non-banks like the Post are participating in digital financial services offerings.
Digital Financial Services
- Microfinance Institution clients can apply for loans and build credit records to improve their creditworthiness
- New partnerships between microfinance institutions and fintech startups are providing loans to students and small businesses
- The Malagasy government has developed a system allowing small and medium-sized enterprises to pay taxes digitally across four regions, with the value of tax collected estimated at approximately $18 million by the end of 2021
National Strategy for Financial Inclusion
The Malagasy government aims to increase financial inclusion to 45% by 2022. To achieve this goal, new regulations are underway to ensure that “know-your-customer” procedures are proportionate to risk and not unnecessarily burdensome.
Regulatory Framework
- Anti-corruption and anti-financial crime guidelines already apply to fintech players
- Local fintech players have formed an association to learn about regulatory requirements and raise awareness of their activities
Five Approaches to Support Fintech Development
1. Adapt the Necessary Regulatory and Policy Framework
- Clear and predictable rules that accommodate technological change while supporting trust and reliability in financial products and services
2. Adopt Digital Identification
- Ease access to financial services by ensuring each Malagasy citizen is able to easily register for formal services
3. Provide Market Incentives
- Fintech business model competitions, de-risking mechanisms, and support to innovation labs and incubators
- Support will be particularly needed for women-led start-ups for skills, financing, and market entry
4. Build the Pillars of an Inclusive Digital Economy
- Improve digital connectivity, access to digital payments and other financial services, and digital support to start-ups and existing businesses
5. Establish a Robust and Innovative Credit Infrastructure
- Promote safe digital credit and ensure that disclosure requirements suited to new digital financial products and providers are in place to protect clients