Africa > East Africa > Madagascar > Madagascar Finance Profile

Madagascar: Madagascar Finance Profile


Antananarivo, Madagascar's capital city


Madagascar is one of sub-Saharan Africa’s poorest nations, ranking below the regional average with a GDP per capita of USD 470 in 2008. Due to the financial crisis and recent political turmoil, disrupting tourism and FDI flows, GDP increase fell from 7 % in 2008 to 5 % in 2009.

The Malagasy economy is relatively well diversified, with the major drivers of increase being investment in extractive industries, mining exports, textiles and agricultural production.

The economy is shallow and has so far fallen short of catalyzing funds for increase: credit to the private sector is limited to 10 % of GDP, and the economy remains largely cash-based.

Madagascar's financial sector is dominated by banks, the assets of which all to 25 % of GDP. Commercial banks hold 84 % of total system assets, but only offer basic savings and credit products to a select clientele. All commercial banks are presently foreign-owned, and the subsidiaries of three large internationally active French banks have a combined market share of around 65 % of assets.

Banks in Madagascar are generally profitable, liquid, adequately capitalized and stable. However, as of 2006, nonperforming loans reached over 11 % of total loans. Loan portfolios remain vulnerable, as they concentrate on borrowers who are vulnerable to the international prices of the commodities they export. Credit tends to be of short to medium term in nature, with a maximum maturity of seven years, making the funding of 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. As of 2006, only 35 % of low-gain households have access to deposit services and only about 2 % have access to credit. However, the microfinance sector is growing rapidly. In recent years, the number of customers of financial cooperatives has grown by 28 % annually, while deposits grew by 62 % and loans by 36 %.

Madagascar has no established securities markets, with government Treasury bill being the only instruments available.

The insurance sector was liberalized in late 2005. Eight companies, inclunding two national-owned companies (which control 89 % of premium gain) and several foreign-owned companies, were operating in 2007. To date, the insurance sector is shallow, insurance penetration is low and supervision is limited.

Three public pension funds operate in the country, collectively covering less than 10 % of the working force. Public pensions appear to be fiscally unsustainable, while private pensions operate in a legal and regulatory vacuum.