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Madagascar’s Disaster Risk Financing: A Review of Current Initiatives and Future Directions

As Madagascar continues to face the threat of natural disasters, its disaster risk financing (DRF) mechanisms are under scrutiny. In this article, we take a closer look at the current state of DRF in the country and explore potential options for inclusive insurance and disaster risk financing.

Current DRF Initiatives

The Fonds National de Concertation (FNC) is a pre-allocated fund established to support disaster preparedness and emergency response activities. With assistance from the World Bank, it is expected to amount to less than $0.5 million.

  • The Catastrophe Deferred Drawdown Option (Cat DDO), financed by the World Bank and the European Union, provides up to $61.7 million in ex ante financing until April 2023.
  • The International Development Association’s Immediate Response Mechanism emergency financing tool offers immediate access to undisbursed IDA investment project balances of up to $5 million to support recovery efforts.
  • The Crisis Response Window provides funds of up to $500 million for climate and health emergencies, economic crises, food insecurity, and disease outbreaks.

Grants, Donations, and Aid

Various agencies and development partners may launch appeals to mobilize funds for recovery and reconstruction needs. World Bank-financed projects may include Contingent Emergency Response Components (CERC).

Sovereign Insurance

The Government of Madagascar has signed a memorandum of understanding with African Risk Capacity to underwrite two sovereign insurance policies for droughts and cyclones, and is currently developing a third policy for riverine floods.

  • Since 2020, payouts of up to $13.6 million have been received for recovery from droughts and Cyclone Batsirai.

Non-Sovereign DRF Initiatives

The World Food Programme (WFP) has purchased ARC Replica policies for drought ($2.4 million maximum coverage) and cyclone ($2.7 million), mirroring the terms and conditions of the Government’s sovereign policy.

  • The UN’s Central Emergency Response Funds (CERF) provide grants and loans to UN agencies for life-saving assistance.
  • The Start Network, a London-based NGO network, has established three mechanisms in Madagascar to respond to crises with varying timelines and financing structures.

Inclusive Insurance and DRF

While the current DRF initiatives are welcome, they may not be sufficient to cover sovereign disaster risks. The amounts available are relatively low compared to relief needs, which is concerning given estimated average annual direct losses of $100 million (primarily due to cyclones).

  • To address this, we recommend strengthening the regulatory environment for microinsurance and building supervisory capacity at the Commission Supérieure de la Bourse et des Marchés Financiers (CSBF).
  • We also suggest building and enhancing MFIs’ technical capacity for insurance services.

Way Forward

The development of inclusive insurance and disaster risk financing in Madagascar requires a multi-faceted approach. By strengthening regulatory frameworks, building supervisory capacity, and enhancing MFIs’ technical capacity, we can create an enabling environment for advancing microinsurance and inclusive insurance across the country.

In conclusion, while current DRF initiatives are underway, there is still much work to be done to ensure that Madagascar’s disaster risk financing mechanisms are sufficient to meet its needs. By exploring innovative solutions and building on existing initiatives, we can help create a more resilient and prepared nation.