Banking Regulation Updates in Madagascar Aim to Boost Financial Inclusion

The World Bank’s Madagascar Financial Inclusion Project has highlighted the potential for digital financial services and fintech to contribute to economic recovery and drive financial inclusion in Madagascar. The island nation, which has long been exposed to climate change, is focusing on expanding its financial sector while improving financial inclusion.

Madagascar’s Financial Sector: Challenges and Opportunities

Over 30 financial institutions make up the sector, including banks, microfinance institutions (MFIs), and e-money institutions.
Mobile Money adoption grew significantly between 2017 and 2020, from 277 accounts to 645 per 1,000 adults.
However, only 18% of Malagasy adults accessed formal financial services in 2017, with significant gaps between men and women as well as urban and rural areas.

The Potential of Fintech and Digital Financial Services

Fintech and digitization of financial services have the potential to lower costs, address information asymmetries, and increase speed and accessibility.
Access to quality internet technology (4G/5G, broadband), electricity (only 33% have access), and related costs constrain fintech and digital financial services adoption.

Innovations in Financial Services

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 are licensed to provide e-money services, and over 10 million people have opened accounts.
Other non-banks also participate in digital financial services offerings, such as the Post, which helps distribute payments in response to the pandemic thanks to its large network of access points.

Microfinance Institutions and Digital Financial Services

Microfinance Institution clients can apply for loans and build credit records to improve their creditworthiness.
A new partnership between ACEP, a Malagasy microfinance subsidiary, and SAYNA, a startup, provides loans of $50 to $600 to students.
MFIs distributed 448,000 micro loans to micro or small firms, which helped build resilience.

National Strategy for Financial Inclusion

As part of Madagascar’s National Strategy for Financial Inclusion, developed with the technical assistance of the World Bank, the Malagasy government aimed to increase financial inclusion to 45% by 2022.
New regulations are underway to ensure that “know-your-customer” procedures are proportionate to risk and not unnecessarily burdensome.
Anti-corruption and anti-financial crime guidelines already apply to fintech players.

Approaches to Accelerate Fintech Development

Adapting the necessary regulatory and policy framework: Drawing on the Bali Fintech Agenda and the BIS Policy responses to fintech, we suggest adapting the necessary regulatory and policy framework.
Adopting digital identification: Adopting digital identification to ease access to financial services can help boost adoption by the Malagasy population of digital financial services.
Providing market incentives: Providing market incentives to boost access to fintech services can encourage more people to adopt digital financial services.
Building the pillars of an inclusive digital economy: Building the pillars of an inclusive digital economy, including improved financial literacy and education in the use of digital tools, especially in rural areas.
Establishing a robust and innovative credit infrastructure: Establishing a robust and innovative credit infrastructure can help support the growth of fintech and digital financial services.

Conclusion

Adoption by the Malagasy population of digital financial services would be boosted by improved financial literacy and education in the use of digital tools, especially in rural areas. By implementing these approaches, Madagascar can accelerate the development of fintech and digital financial services, ultimately driving financial inclusion and economic recovery in the country.