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Financial Inclusion and Crime in Madagascar: A Growing Concern
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Madagascar’s financial sector has been expanding rapidly, but despite this growth, financial inclusion remains a significant challenge for the island nation. According to the World Bank, only 18% of Malagasy adults accessed formal financial services in 2017, with stark gaps between men and women as well as urban and rural areas.
The Challenge
The World Bank’s Madagascar Financial Inclusion Project has identified digital financial services and fintech as key drivers of economic recovery and financial inclusion. However, achieving this goal will require addressing the many barriers that prevent Malagasy citizens from accessing formal financial services.
Barriers to Access
Limited Internet Technology and Electricity
Only 33% of the population has access to electricity, making it difficult for fintech and digital financial services to reach rural areas where poverty rates are higher. This limited infrastructure hinders the adoption of digital financial services, leaving many without access to formal financial products.
Promising Results Elsewhere
Despite these challenges, fintech and digitization have shown promising results in other countries, including East Africa. Mobile money and digital credit have been particularly effective in reaching the poor and underserved populations.
Fintech and Digital Financial Services in Madagascar
In Madagascar, telcos have licensed e-money services, and over 10 million people have opened accounts. Other non-banks, such as the Post, are also participating in digital financial services offerings. Microfinance institutions (MFIs) are providing loans to micro-entrepreneurs and small firms, helping them build resilience.
Pandemic Impact
The pandemic has accelerated the development of e-commerce platforms in Madagascar, but it has also highlighted the need for improved financial literacy and education on digital tools, especially in rural areas.
Suggested Approaches
To accelerate the development of fintech and digital financial services in Madagascar, five approaches have been suggested:
1. Enabling Legal Framework
Create an enabling legal framework that accommodates technological change while supporting trust and reliability in financial products and services.
2. Digital Identification
Adopt digital identification to ease access to financial services.
3. Market Incentives
Provide market incentives such as fintech business model competitions and de-risking mechanisms to boost access to fintech services.
4. Inclusive Digital Economy
Build the pillars of an inclusive digital economy by improving digital connectivity and providing access to digital payments and other financial services.
5. Robust Credit Infrastructure
Establish a robust and innovative credit infrastructure to promote safe digital credit and ensure disclosure requirements are in place to protect clients.
Conclusion
As Madagascar continues to grapple with financial inclusion and crime, it is essential that policymakers prioritize the development of fintech and digital financial services to address these challenges. By doing so, the country can accelerate economic recovery and drive financial inclusion for its citizens.