Madagascans rush to booming microfinance market

from The Khaleej Times

ANTANANARIVO - In Madagascar’s impoverished capital, the establishment of three new microcredit banks this year alone confirms the huge interest for such lending programmes from small bank-shy entrepreneurs.

‘I took out a loan to buy material and develop new, more modern products,’ says 30-year-old Faly Andrianantenaina, who runs a small clothes shop in the heart of the teeming labyrinth of Antananarivo’s main market.

‘With a traditional bank, the interest rate is too high and the application process too complicated. But with Microcred, it was very simple and more importantly very quick,’ he says.

The local branch of French-based Microcred Holding set up shop on the Indian Ocean island in December 2006.

Andrianantenaina explains that his loan of two million ariarys (1,000 dollars) will for the first time allow him to eye economic expansion.

He hopes to repay it as soon as possible, only to take out another ‘microloan’ and start diversifying his stock.

In Madagascar, where two out of three residents lived under the poverty line in 2006, traditional banks suffer from an elitist image that leaves most of the population overawed.

‘These small merchants didn’t ever dare set foot inside a bank,’ explains Nina Ranaivoarisoa, marketing manager for AccesBanque, a bank specialised in microfinance whose main shareholder is German-based Access Holding and opened its first branch in Madagascar in February.

The Aga Khan Foundation launched a similar operation in Anatananarivo in March.

In Madagascar, traditional banks do not necessarily impose higher interest rates than microfinance institutions. The main difference lies in the amount of the loan.

Microcred clients can take out as little 50 dollars at a time while the minimum loan in mainstream banks is generally 20 times that amount.

Petty entrepreneurs who are not considered ‘bankable’ due to a lack of steady income or collateral have pounced on such microloans, in spite of interest rates fetching around 24 percent over a year.

In barely six months, some 2,000 of them have taken out loans with Microcred and around the same number with AccesBanque.

‘We were not expecting such figures, and especially not such substantial loans,’ says Microcred chairman Michel Iams. ‘Madagascar has huge potential and favourable regulations compared to West Africa.’

In spite of a solid array of government incentives, the financing system championed by 2006 Nobel Peace Prize winner Muhammad Yunus still faces some cultural resistance.

‘The repayment process is very well respected by clients, yet credit is an idea that is still perceived negatively and kept secret by people,’ Iams explains.

But the new opportunities microfinance opens up to Anatananarivo residents -- who live in one of the world’s 30 poorest nations -- appear to be gradually breaking down old cultural perceptions.

‘I’m not ashamed,’ says Johnny Randriamandimby, who borrowed 100 dollars from a microcredit company to renovate his small plumbing workshop. ‘We spend all our lives running, when we need something, we need it fast.’

Mutual savings banks had already long introduced microcredit to Madagascar but the arrival on the market of commercial banks seems to have spurred fresh interest in this form of finance.

Microcred has no qualms about admitting its commercial ambitions in Madagascar and showing its differences from the purely social purpose of Yunus’ now famous Grameen bank.

‘You can make a positive impact on development by pursuing regular economic activites,’ Iams says.