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Madagascar: Financial Sector Profile

The financial system is shallow and has so far fallen short of catalyzing funds for growth: domestic credit to GDP ratio remains low, and the economy remains largely cash-based. Access to credit is expensive and limited, especially for small and medium enterprises, and capital markets are undeveloped and hampered by relatively high interest rates.
The financial sector comprises 11 banks, seven financial establishments and 29 micro-finance institutions (three of which are currently suspended and awaiting reauthorisation to operate). Only two banks (Bank of Africa and BFV-Société Générale) are fairly well established outside the capital. Madagascar’s financial sector is dominated by banks, the assets of which amount to 25 percent of GDP. Commercial banks hold 84 percent of total system assets, but only offer basic savings and credit products to a select clientele. All commercial banks are now foreign-owned, and the subsidiaries of three large internationally active French banks have a combined market share of around 65 percent of assets.
The political and economic crisis has affected the quality of the banks’ portfolios. The proportions of non-performing loans and capital risk levels are fairly low but rising. Bad and disputed debts increased to 13.8% of gross loans at the end of June 2011 (from 11.9% in 2010).
Credit tends to be of short to medium term in nature, with a maximum maturity of seven years, making the funding of large infrastructure projects a challenge. Enforcement of prudential standards is weak, as insufficient funds have been available for supervision since the Central Bank ran into financial difficulties in 2004.
Access to financial services is limited. By 2011 only 45 out of every 1000 adults were a depositor at a commercial bank, and only 16 out of every 1000 was a borrower. However, the microfinance sector is growing rapidly.
Ongoing financial system reforms, including the creation of a stock market, have been put on hold, with the passing of related bills tabled in parliament indefinitely postponed due to the political crisis.
Madagascar’s fixed income market remains confined to short term government securities, with no corporate or municipal debt market present in the country. As of March 2013 Madagascar received no sovereign rating by any of the three major credit rating agencies.
While there are no primary dealers, all investors (excluding foreigners) which have a local currency account, subject to good credit standing, can have access to the primary and secondary market; though commercial bank holdings still largely dominate the market, representing about 68 percent of outstanding government debt by the end of 2009. Secondary market activity has decreased considerably, with the volume of transactions falling by over 45 percent in the past six year, and liquidity remains an issue. There is no derivatives market.
Three public pension funds operate in the country, collectively covering less than 10 percent of the work force. Public pensions appear to be fiscally unsustainable, while private pensions operate in a legal and regulatory vacuum.
Financial Capability
Financial capability refers to the knowledge, understanding, attitudes and – most importantly – behaviors – which consumers need to display in order to manage their money well, adapt to new financial circumstances and take advantage of financial opportunities as they arise.

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