Aga Khan Agency for Microfinance

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Microfinance in Madagascar

In the rural areas, PAMF works primarily in support of the activities of the Aga Khan Foundation's rural support programme.The Première Agence de Microfinance Madagascar (PAMF Mada) underwent rapid growth in 2007, its first full year of operations. From the outset PAMF Mada has sought to build a diversified portfolio by opening branches in both rural and urban locales and by developing products appropriate for agricultural and entrepreneurial purposes. Close cooperation with AKF in some of the key rice-growing areas has also helped to bolster the portfolio and contributed to increased rice yields in the region around Sofia.

PAMF Mada started 2007 with just 17 borrowers and ended the year with nearly 3,000. This was a striking increase in a country where 85% of the population lives below the poverty line. PAMF Mada has a strong focus on lending to women and 65% of loans were disbursed to female borrowers, more than 30% of whom live in remote rural areas. The portfolio remained diminutive at just US$ 510,000 due to the fact that most clients were borrowing for the first time and received very small loans. The overall outstanding average loan was only US$ 175 and the loans to members of many farmers’ groups averaged just US$ 50.

AKAM is extremely positive about the progress to date, but remains cautious, as the history of microfinance in Madagascar has been difficult. There have been numerous MFI failures and even the four largest cooperative networks have yet to achieve sustainability after nearly 20 years of operation. They are still dependent upon grants from donors and on subsidized funding.

Madagascar is also subject to periodic natural disasters. In March 2007, cyclone Indala struck the island affecting the northern region around Sofia, cutting off road accesses which interrupted the disbursement operations of PAMF Mada. Recovering quickly, the agency was able to recover quickly and by April, the first urban branch was opened in the capital city of Antananarivo. Additional branches were opened in rural districts during the course of the year, and in September, the second urban branch was opened in the coastal city of Mahajanga.

For 2008, PAMF Mada has plans to expand its operations in the capital by opening four additional outlets and will increase its personnel from 76 to 135 employees. PAMF Mada will also open three new rural branches so as to enhance lending to agricultural suppliers. The target for 2008 is to reach more than 6,000 clients and increase the portfolio to US$ 1.5 million by year end. Average loans sizes should also increase during the course of 2008 as the urban finance portfolio develops around the vibrant trading markets in Antananarivo and Mahajanga. Many clients are already seeking larger loans and requesting more flexible products. There is even a strong demand for SME financing as many small businesses are unable to access credit from the commercial banks and PAMF Mada expects to open an SME lending window in early 2009.

New shareholders will likely also join in the near term and numerous financing options are being explored. Capacity building will also be a central objective in 2008. PAMF Mada plans to draw on synergies with institutions in West Africa, as well as pursue institutional transformation to allow for savings mobilisation. Finally, PAMF Mada will also begin to further diversify its product offerings, beginning with the launch of a housing microfinance loan in the urban areas of Antananarivo and Mahajanga. Leasing and equipment loans were also introduced in Sofia with AKF, and will be progressively introduced in other areas over the course of the year. Health finance products will be developed once the AKF health programme starts operating in the Sofia region.