Small Farmers, Mobile Banking, Financial Inclusion in Madagascar

Madagascar is among the poorest countries in Africa and also ranks low on the continent for financial inclusion - only 5.5% of the adult population has an account at a formal financial institution. With only 19.5 banks and microfinance branches for every 100,000 people, there is a lot of room for improvement when it comes to increasing access to formal financial services.

The good news is that during a recent mission, I was impressed by the financial innovations taking place with rural populations in mind. About 70% of Madagascar’s population lives and farms in rural and remote areas, so reaching this group is essential. Mobile banking holds immense potential for countries like Madagascar, who lack the physical brick-and-mortar representation of banks, and mobile network operators (MNOs) are not ignoring this opportunity.

Two and a half years after launching their initial mobile money operations mid-2010, the three MNOs in Madagascar which together cover 51% of the market – Telma, Orange, and Airtel - registered 1.7 million mobile money subscribers, exceeding the number of bank and MFI customers (1.4 million) by a quarter of a million people (Central Bank 2012).

In order to comply with the banking law in the country, each MNO operating in Madagascar began by forming an exclusive partnership with a commercial bank. Several banks and MFIs are now operating as mobile money agents and MNOs are showing great interest in extending these partnerships beyond the conventional supply of payment services. Their goal is to facilitate, via electronic wallets, provide access to remote savings and loan services for customers.

For example, in June 2013, Orange Money established a partnership with the microfinance bank MICROCRED that allows MICROCRED customers to conduct remote loan repayment and savings transactions. Similarly, Telma Mobile Money (M’Vola), an independent subsidiary of Telma Telecom, has teamed up with BFV-Société Générale and is in discussions with several MFI market leaders offering their mobile channel to provide financial services.

Airtel provides an especially interesting case because it has established an alliance with the Bank of Africa (BOA) specifically targeting smallholder farmers. BOA is the leading bank in the country with the biggest network of branches (77) and roughly 50 percent of all bank clients (300,000) (BOA 2012). BOA’s origins in Madagascar lie in agriculture - it started operations in 1999 by buying the National Agricultural Development Bank - and these roots are evident today through its business line specifically geared towards small farmers. Their tailored services include a microfinance department that manages the supply of credit for smallholder clients and the provision of loans for smoothing financial flows between seasons, equipment purchases, and storage costs. BOA had an outstanding loan portfolio for these clients of approximately $3.2 million in 2012 and plans on increasing this business line three-fold in the next few years.

In 2012 Airtel Money built on this alliance with BOA and launched a pilot initiative focusing initially on 500 small farmers in the northern part of Madagascar, home to cashew production. In an effort to reach more people with formal financial services, Airtel teamed up with the NGO FANAMBY, which was already operating in the region working on biodiversity conservation and supporting small farmers in the marketing process of cashew, to educate agricultural producers about firstly the possibility of receiving sales payments through a mobile money account and secondly opening a BOA bank account linked to their Airtel Money account. The results of this pilot exceeded expectations. By September 2013, 1,250 small farmers were directly involved in this operation. Forty percent had opened a savings account with BOA, with the number of transfers to savings accounts increasing by 10% per month. Since June 2013, a similar operation has been under way in the vanilla value chain in the same region. Next in line will be the red rice value chain in Hautes Terres.

Mindful of the potential impact mobile money can have for financial inclusion, the Central Bank of Madagascar is in the process of adapting regulations on branchless banking as well as the law on microfinance activities and oversight. Changes aim to foster the expansion of mobile money and linkages with the microfinance sector. This is a critical part of Madagascar’s new financial inclusion strategy for 2013-2017 which is about to be adopted and targets vulnerable populations dependent on agriculture. This is also in line with commitments made by the Madagascar Ministry of Finance in the context of the Maya Declaration, as a member of Alliance for Financial Inclusion (AFI), that aim to increase the household penetration rate of microfinance services an increase by 15% by 2017.

For a country like Madagascar, which has a low population density (36 inhabitants/km²), limited infrastructure, and a large part of the population living in rural areas without physical access to banks, alliances between financial institutions and non-bank players are essential to advancing financial inclusion for the poor. The support of regulators and policymakers will be needed to ensure an enabling environment for these partnerships to develop and succeed.