Madagascar, the world's fourth largest island, lies off the southeast coast of Africa. A high plateau separates the rain forests of Madagascar's eastern coast from the savanna and dry forest of the western plains. At its extremes, the northern tip of the island is tropical and humid, while some parts of the arid southwest receive only 5 cm of rain a year. A Least Developed Country as categorized by the United Nations, Madagascar's population of 16 million is amongst the poorest in the world.

Local Governance

In 1999 UNCDF launched a programme in Madagascar to support the local government in the sub-region of Ambato Boeni in its efforts to provide social and economic infrastructure. This area is one of the poorest regions of the country. Like Local Governance Programmes elsewhere, this initiative involved the local populations in the identification, planning, construction and monitoring of the infrastructure. The local population also provides funds to help finance the infrastructure, completing a partnership between the local government, UNCDF, and the local population.

Microfinance

The microfinance sector in Madagascar has been characterized by rather weak local microfinance institutions dominated by the presence of several international NGOs with a proven track record in microfinance. Backed by a Word Bank funded project, the Government is now in the process of elaborating a national policy on microfinance that is intended to run for at least 15 years.

There have been three principle obstacles blocking the further development of microfinance in Madagascar: i) lack of information relating to products, markets, prices and competition and production technologies; ii) absence of management expertise including organizational and accounting skills; and iii) insufficient access to external means of finance and low propensity to generate internal capital.

UNCDF is working to help Madagascar strengthen its microfinance sector. The first such initiative, in 1995, involved a Protocol Agreement between UNCDF and the government of Madagascar to achive the following objectives:

• Reinforce the financial capacities of micro and small-scale enterprises during a five-year period, a significant number of these managed by women;
  
• Reinforce the capacity of local commercial banks (at least 1/3 of all banks in Madagascar) to financially support small and micro and small-scale enterprises; and
  
• Strengthen the link between the commercial banking sector and the network of rural and urban-based savings and loans associations (caisses mutuelles d'epargne et de credit) in support of the delivery of microfinance products and services to small and micro-scale enterprises.

Regarding the third objective, UNCDF formulated a project called the “Guarantee Fund and Line of Credit Refinance for Small and Micro-Enterprises” (PAMPF). The project aimed to contribute to the improvement of access of financial services adapted to the needs of micro and small enterprises. Through the establishment and reinforcement of the linkage between the formal financial market, microfinance intermediaries and end users of micro-credit, this initiative has contributed to the development of a viable microfinance system in Madagascar. The introduction of its two financial instruments (Line of Credit Refinance and Guarantee Facility) fostered the participation of the formal financial market in activities related to microfinance. PAMF has also encouraged the creation of the “Fonds Garantie Mutualiste” which is contributing to the progressive diminishment of the dependence on external financial resources and by consequence their financial and operational serf-sufficiency. The “Fonds Garantie Mutualiste” has also increased resources from the BTM (national bank) channeled to microfinance.

UNCDF approved in January 1999 an amendment to its US$ 4.8 million microfinance project in Madagascar (PAMF II), that aims to strengthen the Fonds de Garantie started in the phase 1 of the project, and also re-direct part of its activities towards direct support to different MFI retailers. With this US$ 1.1 million initiative UNCDF is helping CIDR (Centre International de Développement et de Recherche) expand its network of village level savings and credit associations in the Magenga region. It also is helping more than 300 MFI’s, already members of the network of the “Fonds de Garacntie” being supported by UNCDF, to expand their activities and increase people’s access to microfinance services in Madagascar.

Madagascar’s microfinance sector has also been strengthened through the presence of MicroStart since 1998. The Technical Service Provider (TSP) “Freedom From Hunger”, has delivered assistance to five microfinance institutions CIDR/Vola Mahasoa, FITIA/TIAVO, Haingonala, TAMIFI, and OTIV. Up to date, with funds disbursed to these MFI’s, more than 4,000 low income people now have access to financial services.