Madagascar’s Financial Sector Faces Compliance Challenges Amid Digital Growth
As Madagascar’s financial sector continues to expand, concerns over compliance challenges are mounting. Despite significant progress in mobile money adoption and digital financial services, the country still lags behind in terms of financial inclusion.
Financial Inclusion Gaps Remain
According to a recent report by the World Bank’s Madagascar Financial Inclusion Project, only 18% of Malagasy adults accessed formal financial services in 2017. The gap between men and women, as well as urban and rural areas, remains significant. This highlights the need for innovative solutions to address the challenges faced by the country.
Potential of Fintech and Digital Financial Services
The report highlights the potential for fintech and digitization of financial services to lower costs, address information asymmetries, and increase speed and accessibility. However, access to quality internet technology, electricity, and related costs constrain adoption in rural areas where 63% of the population lives.
Promising Developments
Despite these challenges, digital financial services have shown promise in accelerating economic recovery and inclusion. Financial institutions are digitizing transactions to meet urgent needs, such as paying for health services and receiving wages and social benefits at low cost. Telcos in Madagascar are licensed to provide e-money services, with over 10 million people having opened accounts.
Microfinance Institution Success Stories
Microfinance Institution clients can apply for loans and build credit records to improve their creditworthiness. A new partnership between ACEP and SAYNA provides loans of $50 to $600 to students, while MFIs distributed 448,000 microloans to micro or small firms to help build resilience.
E-commerce Platforms in Madagascar
The pandemic has accelerated the development of several e-commerce platforms in Madagascar, such as esakafo, MyTsena.mg, and Mbike Express Delivery. The government aims to increase financial inclusion to 45% by 2022 through its National Strategy for Financial Inclusion, developed with World Bank technical assistance.
Recommendations for Accelerating Fintech Development
To accelerate the development of fintech and digital financial services in Madagascar, five approaches are suggested:
- Adapt regulatory framework: Create a level playing field that promotes innovation, consumer choice, and access to high-quality financial services.
- Digital identification: Adopt digital identification to ease access to financial services, particularly for those who lack formal ID.
- Market incentives: Provide market incentives to boost access to fintech services, such as fintech business model competitions and support for women-led start-ups.
- Build inclusive digital economy: Improve digital connectivity, access to digital payments, and digital support to start-ups and existing businesses.
- Robust credit infrastructure: Establish a robust and innovative credit infrastructure to promote safe digital credit and ensure that disclosure requirements are in place to protect clients.
Conclusion
Ultimately, adoption of digital financial services will be boosted by improved financial literacy and education in the use of digital tools, especially in rural areas. As Madagascar continues to navigate the complexities of fintech and digital financial services, addressing compliance challenges will be crucial for promoting inclusive growth and economic recovery.