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Public Disclosure Authorized

Public Disclosure Authorized


Public Disclosure Authorized

Document of

The World Bank


Report No: ICR00001801

IMPLEMENTATION COMPLETION AND RESULTS REPORT


(IDA-32170, IDA-32171, IDA-3217A)

ON A
CREDIT
IN THE AMOUNT OF SDR 15.5 MILLION
(US$21.4 MILLION EQUIVALENT)
TO THE
REPUBLIC OF MADAGASCAR
FOR A
MICROFINANCE PROJECT
IN SUPPORT OF THE FIRST PHASE OF

Public Disclosure Authorized

THE MICROFINANCE PROGRAM

September 30, 2011

Finance and Private Sector Development


AFCS4
Africa Region

CURRENCY EQUIVALENTS
(Exchange Rate Effective December 31, 2010)
Currency Unit = Malagasy Ariary (MGA)
MGA 2,000 = US$1
US$1.54 = SDR 1
FISCAL YEAR
January 1 December 31

AGEPMF
APIMF
APL
APMF
AROA
BCM
CAS
CECAM
CEM
CGAP
CNAPS
CSBF
DCA
DID
FM
FSAP
FSS
GNI
IBFI
IBRD
ICR
IDA
IMF
IO
IRAM
ISR
KPI
M&E
MAP
MEC
MFI
MGA
MTR

ABBREVIATIONS AND ACRONYMS


Project Coordination Unit
Apex Microfinance Professional Association
Adaptable Program Loan
Microfinance Apex Association
Adjusted Return on Assets
Banque Centrale de Madagascar
Country Assistance Strategy
Caisses dEpargne et de Crdit Agricole Mutuels (Agricultural Savings and
Credit Cooperative)
Country Economic Memorandum
Consultative Group to Assist the Poor
Social Security Administration
Commission de Supervision Bancaire et Financire
Development Credit Agreement
Dveloppement International Des Jardins
Financial Management
Financial Sector Advisory Program
Financial Self Sufficiency
Gross National Income
International Banking and Finance Institute
International Bank for Reconstruction and Development
Implementation Completion and Results Report
International Development Association
International Monetary Fund
Intermediary Outcome
Institut de Recherches et dApplication des Mthodes de dveloppement
Implementation Status and Results Report
Key Project Indicator
Monitoring and Evaluation
Madagascar Action Plan
Mutuelle dEpargne et de Crdit
Microfinance Institution
Madagascar Ariary
Mid-Term Review
ii

NPL
OSS
PAD
PAR
PASEF
PCU
PDO
PIU
PP
PPF
RFTAP
ROA
ROE
SDI
SDR
SLA
SSA
TA
TOT
TTL
UNCDF
WOCCU

Non-Performing Loan
Operational Self Sufficiency
Project Appraisal Document
Portfolio at Risk
Financial Services Project
Project Coordination Unit
Project Development Objective
Project Implementation Unit
Project Paper
Project Preparation Facility
Rural Finance Technical Assistance Project
Return on Assets
Return on Equity
Subsidy Dependence Index
Special Drawing Rights
Savings and Loan Association
Sub-Saharan Africa
Technical Assistance
Training of Trainers
Task Team Leader
United Nations Capital Development Fund
World Council of Credit Unions

Vice President:
Country Director:
Sector Manager:
Project Team Leader:
ICR Team Leader:

Obiageli Katryn Ezekwesili


Haleh Z. Bridi
Michael J. Fuchs (Acting)
Korotoumou Ouattara
Zahia Lolila

iii

iv

REPUBLIC OF MADAGASCAR
Microfinance Project

CONTENTS
Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Project Performance in ISRs
H. Restructuring
I. Disbursement Graph
1.

Project Context, Development Objectives and Design ........................................................... 1

2.

Key Factors Affecting Implementation and Outcomes ........................................................ 12

3.

Assessment of Outcomes ...................................................................................................... 19

4.

Assessment of Risk to Development Outcome ..................................................................... 35

5.

Assessment of Bank and Borrower Performance ................................................................. 36

6.

Lessons Learned.................................................................................................................... 41

7.

Comments on Issues Raised by Borrower/Implementing Agencies/Partners....................... 42

Annex 1: Project Costs and Financing ......................................................................................... 43


Annex 2: Outputs by Component ................................................................................................ 45
Annex 3. Economic and Financial Analysis ................................................................................. 57
Annex 4. Bank Lending and Implementation Support/Supervision Processes............................. 65
Annex 5. Beneficiary Survey Results ........................................................................................... 67
Annex 6. Stakeholder Workshop Report and Results ................................................................... 68
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................................... 69
Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................................... 70
Annex 9. List of Supporting Documents ...................................................................................... 71
Map ............................................................................................................................................... 73

List of Tables
Grouping of PDO Indicators and Intermediate Indicators ............................................... 4
Project Statements of Objectives ..................................................................................... 4
List of Original and Revised Targets at Restructuring (2007) by PDOs ......................... 5
List of Original & Revised Indicators at Restructuring (2007) - Project Outcome
Indicators .......................................................................................................................... 6
Table 5. Financing Breakdown by Component ........................................................................... 10
Table 6. Breakdown of sources of funds (US$) ........................................................................... 10
Table 7. Additional Financing Cost Breakdown & Disbursement Rate (December 2010) by
Component ..................................................................................................................... 11
Table 8. Achievement of Performance Indicators of MFI Networks (Pre and Additional
Financing Eras) ............................................................................................................... 22
Table 9. Overall Weight ............................................................................................................... 23
Table 10. Top Ten Countries in Borrowers and Savers by Penetration Rates ............................. 23
Table 11. Rating of Project Efficiency (Pre-Additional Financing and Additional financing eras)
........................................................................................................................................ 28
Table 12. MFI Networks Profitability/Sustainability Index (December 31, 2010) .................... 30
Table 13. Operating Efficiency Trend of the Supported MFIs .................................................... 31
Table 14. Summary of Overall Outcome Ratings of PDOs ......................................................... 32
Table 15. Outreach Impact on Access to Finance........................................................................ 33
Table 16. MFI Penetration Rate ................................................................................................... 34
Table 17. Results Framework - Outputs by Component - PDOs ................................................. 45
Table 18. Results Framework - Outputs by Component IO Indicators .................................... 49
Table 19. Performance of Individual MFI networks (Additional financing era 2007 2010) .... 52
Table 20. Impact on Beneficiaries as reported in the AGEPMF Impact Study report 2005 (PreAdditional Financing Period) ......................................................................................... 54
Table 21. Consolidated Financial Analysis for the five MFI Networks in December 2010 ....... 57
Table 22. List of Legal Instruments prepared .............................................................................. 59
Table 23. Classification of MFIs (Level 1 3) including Capital Adequacy Requirements....... 60
Table 24. List of new Licenses Issued and Classification of MFIs (2008 2010) to MFIs (from
level 1 to 2 & 3) .............................................................................................................. 61
Table 1.
Table 2.
Table 3.
Table 4.

vi

A. Basic Information
Country:
Madagascar

Project Name:

Project ID:

P052186

L/C/TF Number(s):

ICR Date:

06/30/2011

ICR Type:

Lending Instrument:

APL

Borrower:

Original Total
XDR 12.1 M
Commitment:
Revised Amount:
XDR 15.5 M
Environmental Category: C
Implementing Agencies:
AGEPMF
CSBF

Disbursed Amount:

MG-Microfinance
IDA-32170,IDA32171,IDA-3217A
Core ICR
GOVERNMENT OF
MADAGASCAR
XDR 14.7M

Cofinanciers and Other External Partners: The PAD anticipated contributions from other
donors as explained below. These pledges were not channeled through the project, and there is
no evidence to substantiate whether they were given to MFIs directly or not. Interviews with
beneficiary MFIs indicated that UNCDF provided direct support to some of the MFI networks to
support womens credit programs. Contribution from the government was stopped at the time of
project restructuring in 2007 at the request of the authorities who had difficulties to honor their
commitments.
Government: MGA1.8 million (US$913,860)
Savings and Loan Association Networks: US$0.2 million
UNCDF: US$0.7
EU: US$0.7
Developpement International Desjardins US$0.3
Total Financing including IDA US$20.4 million
B. Key Dates
Process

Date

Process

Concept Review:

09/24/1997

Effectiveness:

Appraisal:

11/09/1998

Restructuring(s):

Approval:

05/20/1999

Mid-term Review:

Original Date

Revised / Actual
Date(s)

10/28/1999

10/28/1999
10/22/2002

06/30/2006

Restructuring(s):
Closing:

02/23/2007
12/31/2004

C. Ratings Summary
C.1 Performance Rating by ICR
Outcomes:

Moderately Satisfactory

vii

02/19/2004
12/31/2010

Risk to Development Outcome:

Moderate

Bank Performance:

Moderately Satisfactory

Borrower Performance:

Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)


Bank
Ratings
Borrower
Quality at Entry:

Satisfactory

Quality of Supervision:

Moderately Satisfactory

Overall Bank
Performance:

Moderately Satisfactory

Ratings
Moderately
Unsatisfactory

Government:
Implementing
Agency/Agencies:
Overall Borrower
Performance:

Unsatisfactory
Moderately
Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators


Implementation
QAG Assessments (if
Indicators
Performance
any)
Potential Problem Project
at any time (Yes/No):

Quality at Entry
(QEA):

Yes

None

Quality of Supervision
Moderately Satisfactory
(QSA):

Problem Project at any time


Yes
(Yes/No):
DO rating before
Closing/Inactive status:

Rating

Moderately
Satisfactory

D. Sector and Theme Codes


Original

Actual

Sector Code (as % of total Bank financing)


Central government administration
Micro- and SME finance

94

94

Theme Code (as % of total Bank financing)


Gender

13

13

Improving labor markets

13

13

Regulation and competition policy

25

25

Rural markets

24

24

Small and medium enterprise support

25

25

E. Bank Staff
Positions

At ICR

At Approval

Vice President:

Obiageli Katryn Ezekwesili

Callisto E. Madavo

Country Director:

Haleh Bridi

Michael N. Sarris

Sector Manager:

Michael J. Fuchs

Paul Murgatroyd (Acting)

viii

Project Team Leader:

Korotoumou Ouattara

Herminia Martinez

ICR Team Leader:

Zahia Msuya Lolila-Ramin

ICR Primary Author:

Zahia Msuya Lolila-Ramin

F. Results Framework Analysis


Project Development Objectives (as stated in the Project Appraisal Document)
The original Project Development Objective was to provide increased financial services to the
low-income population not served by the traditional banking sector through (a) the formulation
of regulations governing microfinance; improvement in business laws applicable to
microfinance, notably on collateral, and the establishment of a supervision mechanism for
microfinance institutions (MFIs); (b) the design and testing of a training system for
microfinance; and (c) the establishment and expansion of MFIs, particularly the savings and
loan associations (SLAs). This in long-term will contribute to improved standard of living and
productivity.
Revised Project Objectives as approved by original approving authority
Project objectives were not revised. However they are written differently in the PAD,
restructuring document and in the credit and financing agreements (see details under section
1.4, Table 1). Although the wording is different, the three elements of improving long term
access, policy and capacity in the microfinance sector remained unchanged and relevant. In the
Development Credit Agreement (DCA), the objective included three intermediate outcomes
that would be achieved under each component of the project:
(i)
The establishment of legal and regulatory framework for microfinance operations;
(ii)
The expansion of microfinance skills (capacity); and
(iii) The development of strong and sustainable microfinance institutions through inter alia
establishment of a refinancing mechanism.
(a)

PDO Indicators

Below is a summary of achievement of PDO indicators which is complemented by a detailed


results framework in Annex 2.
Project
Development
Objectives
(PDO)
PDO
Indicator 1:*
(Text)

Original Target
Formally revised
Actual Values Achieved
Values
Target Values
at Completion or Target
Baseline Value
(from approval
Years
documents)
Enabling legal and regulatory environment for doing microfinance business in Madagascar
exists
-Several legal
-Microfinance
-Microfinance laws
- Based on the banking law
impediments exist
laws and
are effective and
number 95-030 and law
for MFIs operating
regulations that
regulations that
number 96-020 (1996) on
in Madagascar
reflect
reflect international
mutualist financial
(including lack of
international best best practice are
institutions, prudential and
legal supervisory
practice are
adopted including
operating rules for mutualist

ix

Project
Development
Objectives
(PDO)

Baseline Value
framework for
microfinance
institutions and
prudential norms).
-Usury law exists
restricting growth
of microfinance
sector.

Original Target
Values
(from approval
documents)
issued, adopted
and implemented.
-Liberalization of
interest rates in
microfinance and
simplification of
legal procedures
for collateral
seizure.

Formally revised
Target Values
prudential norms to
facilitate effective
supervision of
microfinance
institutions.
-Liberalization of
interest rates is
effective and
microfinance
collateral is
recognized in legal
procedures for
collateral seizure

Actual Values Achieved


at Completion or Target
Years
and non mutalist MFIs were
issued including: 11
regulations; 2 decrees; 8
instructions and 1 legislation
to improve microfinance
sector. These were developed
based on microfinance
international best standards.
- A law was passed giving
the Central bank supervisory
role of MFIs with clear
mandate.
- Microfinance collateral is
legally recognized and
procedures for collateral
seizure were developed
based on international best
practice.

Date achieved
Comments

PDO
Indicator 2:*
Value
(Quantitative)

- The usury law was


prepared but has not yet been
submitted to the Parliament
for endorsement due to the
transitional nature of the
government.
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Target achieved. The introduction of simplified microfinance prudential norms on capital
adequacy, credit risk, limitation on exposures (to staff/Board members) and clarity on regulatory
roles and codes of conduct have improved operations of the microfinance sector. The regulator is
satisfactorily enforcing the laws; MFIs are adequately trained and are effectively in compliance
with the norms. A streamlined registration procedure and supervision mechanism of microfinance
institutions is in place for the different types of MFIs (level 1 - 3). Microfinance database and
credit bureau managed by the regulator (Central Bank) is operational and has been linked with
the credit bureau for banks. This has reinforced regulators capacity to supervise and manage risk
for the entire financial sector. Although the old usury law has not formally been abolished, MFIs
and other financial institutions are not obliged to adhere to it and in fact they currently set
competitive market interest rates. (See Annex 3, Table 22, Table 23 and Table 24 for the full list
of laws and legal instruments prepared).
Increased access to financial services by low income populations

3 SLA
(microfinance
networks) with
59 branches and
22818 members

About 72,500 low


income families
access financial
services provided
by SLAs/MFIs
- 102 SLAs in
operation

Existing five viable


SLA networks with
200 SLAs in
operation reach about
300,000 members of
which 50% are
women and 25%
from disadvantaged
groups

Five SLA Networks


(comprised of 236
decentralized MFI branches)
exist and are reaching
391538 members with
diversified products (savings,
loans, pension transfer) of
which 51 percent are women.

Project
Development
Objectives
(PDO)

Baseline Value

Original Target
Values
(from approval
documents)
-Total savings
reach US$2.9
million and
-Total
outstanding loans
US$3.5 million.

Formally revised
Target Values

Total savings reach


US$25 million and
Total outstanding
loans US$23 million.

Actual Values Achieved


at Completion or Target
Years
A total of US$ 29million in
savings was mobilized
Loan portfolio had
outstanding loans valued at
US$23 million.

All MFIs are


operationally selfsufficient and
profitable.

Date achieved
Comments
(incl. %
achievement)

PDO
Indicator 3:*
(Text)

Date achieved
Comments

The five MFI networks are


on average operational self
sufficiency (106%) and on
average are financially self
sufficient (103%).
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Target achieved. Membership target was exceeded by 30 percent. About 51 percent of
beneficiaries are women. Reported beneficiaries comprise all members (savers only, savings and
credit, savings and pension receivers). The total beneficiaries reported comprised 48,022 active
loan accounts at closing in December 2010. Savings is prerequisite to loans which in this case
indicate that there were more savers than borrowers among the beneficiaries.
Greater efficiency in judicial system for microfinance Institutions
(Results are reported under PDO #1)
Results are reported Results are
Results are reported
Results are reported under
under PDO #1
reported under
under PDO #1
PDO #1
PDO #1
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Results are reported under PDO #1

PDO
Indicator 4:
Value
(Text)

Increased productivity and improved standards of living of MFI clients


No baseline data

Impact study to
confirm improved
standards of
living

Date achieved

20-May-1999

31-Dec-2004

Comments
(incl. %
achievement)

This impact study was conducted before the 2007 restructuring of the project. The study findings
indicate that standards of living of beneficiaries had improved. The study confirmed that overall
57 percent of the interviewed beneficiaries reported that their standards of living had improved as
a result of participating in the project. Rural farmers reported that they were able to increase their
land surface holding and bought fertilizers and inputs which increased productivity. In Lac
Alaotra about 54 percent of interviewed beneficiaries were able to buy improved agriculture
equipment, and 48 percent increased their land holding (at appraisal Lac Alaotra was reported to
have high incidence of land seizure by money lenders - loan sharks) who were the main source of
credit1. In Fianarantsoa, 40 percent reported increased number of livestock holding. Overall 40
percent of the interviewed beneficiaries reported increased revenues, 39 percent had increased

Restructuring paper for Additional Financing 2007.

xi

An impact study (2005)


confirmed that standard of
living of beneficiaries had
improved and land
productivity had increased.
Sixteen intermittent studies
including feasibility studies
for expansion were prepared.
31-Dec-2010

Project
Development
Objectives
(PDO)

PDO
Indicator 5:
(Text)

Date achieved
Comments

(b)

Original Target
Formally revised
Actual Values Achieved
Values
Baseline Value
Target Values
at Completion or Target
(from approval
Years
documents)
school enrolment for their children due to income from their businesses. Overall 33 percent
reported improved daily diet and 29 percent improved health status of their families. Focus group
discussion reported that some borrowers were able to make home improvements due to profits
gained from their businesses. Some were able to buy consumer goods like radios, television and
fridges. The instability during the additional financing phase (2007 2010) made it difficult to
undertake another study towards the end which could have provided updated evidence of the
improved productivity and beneficiaries standard of living.
Appropriate supervisory methodologies for MFIs established
(Results are reported under PDO #1)
Results are reported Results are
Results are reported
Results are reported under
under PDO #1
reported under
under PDO #1
PDO #1
PDO #1
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Results are reported under PDO #1

Intermediate Outcome Indicators

Intermediate
Outcome Indicator
IO Indicator 1:
(Text)

Date achieved
Comments
IO Indicator 2:*

Value
(Quantitative)
Date achieved
Comments
(incl. % achievement)
IO Indicator 3:
Value
(Text)

Baseline Value

Original Target
Values
(from approval
documents)

Revised Target
Values
(as approved by
original approving
authority)

Actual Values Achieved


at Completion or Target Years

Prudential rules are issued for all MFIs


(Results are reported under PDO #1)
Results are reported Results are
Results are reported
Results are reported under PDO #1
under PDO #1
reported under
under PDO #1
PDO #1
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Results are reported under PDO #1
Two existing SLAs (Fianaransoa and Toamasina) are strengthened and two new networks are
created in Tana and Antsiranana and perform well
(Results are reported under PDO #2)
Results are reported Results are
Results are reported
Results are reported under PDO #2
under PDO #2
reported under
under PDO #2
PDO #2
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Results are reported under PDO #2
Build Capacity of microfinance through training
Only few Malagasy
80 persons attend Training program
have had formal
one or more
delivers specially
training and can
microfinance
designed and adapted
properly manage an
courses
technical modules to
MFI
practitioners from all
MFIs in the country.
Evaluation of
program confirms
increased knowledge

xii

A total of 19 training sessions


including Training of Trainers
(TOT) were organized through an
umbrella microfinance apex
association (APMF) for more than
100 MFI staff and practitioners.
CSBF trained about 50 staff/Board
members of MFI networks on the

Intermediate
Outcome Indicator

Date achieved
Comments

IO Indicator 4:*
Value
(Text)

Date achieved
Comments
(incl. % achievement)

Baseline Value

Original Target
Values
(from approval
documents)

Revised Target
Values
(as approved by
original approving
authority)
and skills for proper
management of
MFIs.

Actual Values Achieved


at Completion or Target Years
new laws, prudential norms and
internal risk control.

CSBF staff benefited from;


Exchange visits to Indonesia, Sydec
Dakar and Boulder. They benefited
from seminars offered by the World
Bank on financial
management/procurement, seminar
on Basel norms; IBFI - banking
accounting; FIS/BIS managing
supervisions /financial risk, Credit
Risk management; internship in
Swiss Mutualist banks
(RAIFFEISEN), K-REP Kenya;
Indonesia bank Rakiat and NGO
BINA SWADYA etc.
AGEPMF resident consultants (DID
Canada) offered various in-house
training to staff/Board of MFI
networks on governance, internal
control systems, credit risk
management etc. Evaluations reports
confirm improved capacity of MFI
practitioners (see training reports
attached).
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Targets achieved with positive impact at all levels (sector , Central bank, MFI networks staff & Board
etc) as evidenced by solid capacity of MFI networks in credit risk and operations management and the
effective regulation/supervision of MFIs by the regulator. There is evidence of increasing number of
microfinance specialists in the country who provide consultancy services. MFI practitioners interviewed
confirmed that there are sufficient courses in microfinance in Madagascar compared to 1999 where most
of the trainings were conducted abroad.
Financial Self Sufficiency (FSS) (Core Indicator)
FSS for all MFIs to
The five MFI networks achieved
N/A
N/A
be measured
103% average financial self
(< 100% for all MFI
sufficiency
networks)
20-May-1999
31-Dec-2004
31-Dec-2010
31-Dec-2010
Target achieved satisfactorily. OSS & FSS were added as core mandatory indicators. Average OSS
achieved was 106 percent (against 122 percent baseline (2006*) set at restructuring2 and against
international best practice of 100 percent breakeven point. The OSS targets established at restructuring
were based on a good trend performance of prior years (before additional financing) but they proved to
be ambitious during the turbulent era of additional financing. Average FSS achieved of 103 percent is
quite good3 as international best practices have proved that institutional development of rural MFIs can

2
There was no OSS target established for 2010 during restructuring as the project was to end in 2009. Also no FSS targets were established as
this core indicator was added after restructuring was completed.
3
No targets were established for FSS.

xiii

Intermediate
Outcome Indicator

IO Indicator 5:
Value
(Text)
Date achieved
Comments

IO Indicator 6:
Value
Date achieved
Comments
(incl. % achievement)

IO Indicator 7:
Value
Date achieved
Comments

Revised Target
Values
Actual Values Achieved
Baseline Value
(as approved by
at Completion or Target Years
original approving
authority)
take up to 15 years to become fully financially self sufficient (breakeven at 100% FSS) due to high startup costs (fixed/operating) particularly in remote rural settings dealing mainly with agriculture loans as
was the case in this project. The FSS is an excellent measure of efficiency and efficacy of MFIs as it
takes into account costs of funds and inflationary effects as opposed to OSS which focus on coverage of
operational costs. At closing the FSS achieved for two MFIs (Diana and Fianarantsoa) was far above the
breakeven point. These two networks are the best performers with Diana being the main source of loans
to other MFI networks at 12% interest rate which is slightly below average market rate of 15%. The FSS
for three MFI Networks were slightly below the 100% breakeven point (OTIV Tana 94.5%; Alaotra
Mangoro 99.14% and Toamasina 97.16%). OTIV Tana which covers semi urban settings had high
incidence of borrowing from commercial banks which comes with high cost of funds. Also commercial
borrowing shrunk in 2009/10 due to financial crisis. (See Annex 2 for a thorough performance
assessment of OSS & FSS for the five MFI networks).
Portfolio At Risk (PAR) (Core Indicator)
NPL to be
MFI networks have NPL of 10%
N/A
measured
against the industry norm of 5%..
20-May-1999
31-Dec-2010
31-Dec-2010
PAR (NPL) was core mandatory indicator added later to the project. NPL ratio decreased by 4% from
14% observed in 2009 during the financial and political crisis. This means an estimated overall average
repayment rate of 90 percent (30 days past due loans) against 95 percent estimated target during
restructuring in 2007. Loan underwriting was slowed down in 2009/2010 to focus on risk management
and loan recovery. Overall MFIs made profits with 17 percent Return on Equity (ROE) in 2010 albeit the
worries on portfolio at risk. The microfinance sector as a whole in sub-Saharan Africa (SSA) suffered
losses and raising NPL in 2009 2010 (see sub-Saharan Africa (SSA) microfinance performance details
under section 3.2 3.4)..
Number of active loan accounts Microfinance (Core Indicator)
4,027
70,212
48022
Original Target
Values
(from approval
documents)

20-May-1999
31-Dec-2010
31-Dec-2010
Target achieved at 68%. Loan underwriting which was steady prior to 2009 crisis was substantially
decreased in 2010. Despite the decrease, the networks remained profitable and were on average
operationally self sufficient (106%). This figure includes only loan accounts as opposed to overall
beneficiaries number which include borrowers and savers (including pensioners).
Active loan accounts for women) (Core Indicator)
1562
4,505
18715
20-May-1999
31-Dec-2010
31-Dec-2010
Target achieved and exceeded. Loans to women groups were above 50%. Special associations were
established to accommodate the needs of women from the low income groups. The women tailored
program has been mainstreamed to core products of MFI networks.

xiv

G. Ratings of Project Performance in ISRs


No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Date ISR
Archived
06/30/1999
11/22/1999
05/15/2000
10/16/2000
05/29/2001
11/29/2001
05/15/2002
09/26/2002
04/28/2003
11/06/2003
03/02/2004
05/11/2004
11/18/2004
06/13/2005
12/13/2005
06/26/2006
12/29/2006
06/25/2007
10/31/2007
06/12/2008
12/19/2008
06/19/2009
12/29/2009
05/31/2010
03/27/2011

DO

IP

Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Unsatisfactory
Unsatisfactory
Unsatisfactory
Satisfactory
Satisfactory
Highly Satisfactory
Highly Satisfactory
Highly Satisfactory
Highly Satisfactory
Satisfactory
Satisfactory
Satisfactory
Moderately Satisfactory
Moderately Satisfactory
Moderately Satisfactory
Moderately Satisfactory

Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Unsatisfactory
Unsatisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Moderately Satisfactory
Moderately Satisfactory
Moderately Satisfactory
Moderately Satisfactory
Moderately Satisfactory

Actual Disbursements
(USD millions)
0.00
1.88
2.35
3.12
4.12
5.73
6.32
6.74
7.69
9.46
9.56
10.12
10.66
12.98
13.90
15.34
15.80
16.22
16.35
17.80
19.23
19.29
19.29
19.29
20.98

H. Restructuring (if any)


ISR Ratings at
Amount
Board
Restructuring
Restructuring Disbursed at Reason for Restructuring & Key
Approved PDO
Date(s)
Restructuring
Changes Made
Change
DO
IP
in USD millions
The political crisis made it
necessary to restructure the project
and enable the Bank finance all
activities at 100% without
10/22/2002
U
S
6.94
government contribution to allow
for effective implementation.
Government contribution was not
easily forthcoming and that
affected implementation.

xv

ISR Ratings at
Amount
Board
Restructuring
Restructuring Disbursed at Reason for Restructuring & Key
Approved PDO
Date(s)
Restructuring
Changes Made
Change
DO
IP
in USD millions
Additional financing was to bridge
the gap required to prepare the
Financial Services Project
2007
HS
S
16.22
(PASEF) program through which
the subsequent phases of the
microfinance adaptable program
loan (APL) were to be undertaken.

I. Disbursement Profile

xvi

1.

Project Context, Development Objectives and Design

1.1

Project Description

1.
The microfinance project was the first phase of a 15-year microfinance program
aimed at fostering a sustainable microfinance system to address the lack of financial services
for lower income population and contribute to the national objective of poverty reduction. A
study on poverty changes4 in Madagascar revealed that poverty rose from an already high
level of 70 percent in 1993, to 73.3 in 1997, before falling to 71.3 in 1999. This pattern of
change, which corresponded to the evolution of macroeconomic policy during that period,
was restricted primarily to urban areas. Populations in rural areas witnessed persistent
increases in poverty despite market reforms, as structural constraints including remoteness
and low land productivity affected their ability to escape poverty. Small scale agricultural
households were hit particularly hard. Access to financial services was limited as all banks
were state owned and failing. Attempts to develop credit operations to smallholder farmers
had not been successful, as the banking sector, mainly the public banks which were to lend to
low-income clients, had ill-adapted products, high costs, and poor recovery rates.
2.
Rationale for Bank Assistance: The Microfinance program was designed to increase
access to finance for low income population, and improve policy and capacity in the
microfinance sector. This was to be achieved through the establishment of an appropriate
legal, regulatory and supervisory framework for microfinance, the expansion of microfinance
skills, and the development of strong and sustainable local institutions. The program built on
successful experiences piloted under the World Bank-financed Rural Finance Technical
Assistance Project (RFTAP) (Cr. 2459-MAG), designed in 1993, which developed a new
approach of delivering savings-based credit through the creation of savings and loan
associations (SLAs) also known as financial cooperatives. Recognizing that traditional
approaches to rural finance were ineffective and paid little attention to savings, RFTAP
aimed to promote a sustainable savings and loan movement at the grass-roots level that
would provide sound financial services to its members and over time link up with formal
institutions. Under RFTAP, between 1993 and 1997, a law was promulgated and three
microfinance networks totaling 54 SLAs/financial cooperatives were created with about 175
members per SLA on average and average savings of US$15-US$20 per person. These SLAs
were subsequently licensed as microfinance institutions (MFIs) under the new law. The
experience brought to light the importance of capacity building in microfinance and the time
needed for MFIs to break even and become sustainable. Experience had also proved that this
type of intervention required sustained support over a long period of time to support policy
development and implementation. Thus, an Adaptable Program Loan (APL) was chosen as
the instrument to support the program over a 15-year period in three five-year tranches with
the aim to ensure long-term viability of SLAs (or MFIs). Phase I would support the
development of a legal/regulatory and supervisory framework for microfinance institutions
(MFI); the design and testing of a national training program in microfinance; and the
establishment of SLAs in four of Madagascar's six provinces. Phase II would support the

Stefano Paternostro et al, 2001, Cornell Food and Nutrition Policy Program Working Paper No. 120

consolidation of the SLAs by expanding coverage in the areas where they were established,
and, if feasible, penetrate into other areas to reach a sustainable scale and cost structure. It
would also implement a microfinance training program. Phase III would finally help
strengthen the financial core of SLA networks and support its evolution into full-fledged
self-sustainable financial institutions.
3.
The Microfinance program supported the Government's objective of reducing
widespread poverty, which was at the center of the Country Assistance Strategy (CAS,
document number 16249-MAG, February 1997). Improving access to financial servicesa
frequently cited constraint to agricultural and entrepreneurial activity in Madagascarwas to
support the CAS objectives of rural development as well as private sector development.
Governments aim was to improve financial intermediation to support investment and growth.
Microfinance was seen as a vehicle for financial deepening and a means to compensate for
the failure of the banking sector in providing financial services to people with limited
resources. The project was to help alleviate poverty by making financial services (both credit
and savings facilities) available to an increasing number of lower income populations,
especially small-scale farmers, artisans, traders and women. This would help increase
productivity, incomes, and living conditions. The program also supported the CAS objectives
of sustainability, capacity building, stakeholder consultation, donor collaboration and
continuous learning (building on the pilot RFTAP).
1.2

Context at Appraisal

4.
At appraisal, the Malagasy financial system was embryonic, and represented a
constraint to investment and economic activity. In 1998, the system comprised six
commercial banks (two state-owned, being privatized), a savings bank, three insurance
companies (two state-owned), four savings and loans associations (SLAs) also known as
financial cooperative networks, and two small donor-supported microfinance institutions
(MFIs). Madagascars financial sector reforms led to the closing of many rural bank branches
and further widened the gap in access to financial services by the poor and people in the rural
areas. The Government was aware of the financial sector constraints. It was committed to
address them by pursuing macroeconomic policies that ensured price stability, which is a
precondition for financial sector development. Equally, it was committed to further liberalize
the sector. The Government's strategy for microfinance was spelled out in its Letter of
Development Policy of April 1999: the objective of improving access to financial services
was part of the financial sector strategy. Reflecting this commitment, the Government had
encouraged private initiatives in support of MFI development and enacted legislation
promoting and regulating MFIs under the Rural Finance Technical Assistance Project
(RFTAP) upon which the microfinance project was built.
1.3

Original Project Development Objectives (PDO) and Key Indicators (as approved)

5.
The original Project Development Objective was to provide increased financial
services to the low-income population not served by the traditional banking sector. The
project aimed to set up an appropriate policy framework for the development of microfinance
and to help establish microfinance institutions. The Project development objective was to be
measured through the following key outcome Indicators:
2

a) Enabling laws and regulations for MFIs


b) Greater efficiency in the judicial system (through improved legal texts and legal
procedures)
c) Appropriate supervisory methodologies for MFIs established
d) Outreach to low-income families (about 72,500 low-income families accessing
financial services provided by SLAs)
e) Increased productivity and improved standards of living of the beneficiary households
1.4

Revised PDO (as approved by original approving authority) and Key Indicators,
and reasons/justification

6.
The PDO remained unchanged throughout the project. However, it was expressed
differently in the original PAD, the restructuring paper and DCA.
7.
The Key Outcome Indicator for assessing the achievement of the PDO for this project
is, therefore, indicator #2 which is increased access to financial services by low income
population. More than 70 percent of the project budget and the level of effort were directed
to support this objective.
8.
Some of the targets were changed and new indicators introduced during project
implementation (See Table 4). The results framework for this ICR is based on the revised
indicators adopted in 2007 when the project was restructured as well as core indicators
(Operational Self Sufficiency (OSS) & Portfolio at Risk (PAR) or Non Performing Loans NPL) which were added later. All baseline values are as of June 1999 except for mandatory
core indicators which did not have a baseline as they were added towards the end of the
project. The analysis in section 3.2 has taken into account the targets for operational selfsufficiency (OSS) which were established in the restructuring paper (2007).
9.
The justification of overall outcome rating under section 3.4 has been split for two
periods of project implementation (before and after additional financing) and a weighted
method has been adopted for this assessment. The same method has been used in sections
3.2 and 3.3 to rate achievement of PDOs and project Efficiency/Efficacy. Although the PDO
of the project was never changed, the analysis has adopted the weighting method in order to
effectively recognize the outcomes achieved during the two separate eras (Pre Additional
Financing period and the Additional Financing period that started in 2007 when the project
was restructured and lasted until 2010.
10.
The results framework has several similar indicators (project development objectives
- PDOs & intermediate outputs - IOs). Some adjustments were made for improved analysis
and reporting. Two PDO indicators were, thus, combined and two intermediate outcome
indicators were matched with relevant PDO indicators for analysis of results (see table
below).

Table 1. Grouping of PDO Indicators and Intermediate Indicators


Grouping of indicators
PDO Indicator #1
Enabling legal and
regulatory environment
for doing microfinance
business in Madagascar
exists

PDO Indicator #2
Increased access to
financial services by
low income populations

Comment on adjustments
PDO Indicator #3:
Greater Efficiency in judicial system
for microfinance institutions

Results for PDO #3 are reported


under PDO Indicator #1

PDO Indicator #5: Appropriate


supervisory methodologies for MFIs
established

Results for PDO #5 are reported


under PDO Indicator #1

Intermediate Outcome Indicator #1:


Prudential rules are issued for all
MFIs

Results for IO#1 are reported under


PDO Indicator #1.

Intermediate Outcome Indicator #2:


Two existing SLAs (Fianarantsoa and
Toamasina) are strengthened and two
new networks are created in Tana and
Antrisanana and perform well

Results for IO #2 are reported under


PDO Indicator #2

Table 2. Project Statements of Objectives


Objective as
stated in the PAD

To provide
increased financial
services to the
low-income
population not
served by the
traditional banking
sector.

Objective as stated in the DCA

To assist the Borrower in


a) Carrying out the first phase of its
program to provide about 80,000 lowincome families engaged in small-scale
farming, livestock, fishing, commerce,
and handicrafts production activities
with long-term access to financial
services thereby improving their
productivity, income and living
standards and conditions.
b) The establishment of legal and
regulatory framework for microfinance
operations
c) The expansion of microfinance
skills and
d) The development of strong and
sustainable microfinance institutions
through inter alia establishment of a
refinancing mechanism.

Objective as
stated in the
Project Paper
Additional
financing
To increase longterm access to
financial services
to low-income
populations in
Madagascar.

Objectives as
stated in Project
Agreement
Providing increased
financial services to
the low-income
population not
served by the
traditional banking
sector.

11.
Although the objective is expressed differently the three elements of improving long
term access, policy and capacity in the microfinance sector which were core to the original
PAD objective remained unchanged and relevant. These three elements were consistently
used in the Implementation Status and Results (ISR) reports and have been used to judge the
achievement of PDOs for this Implementation Completion and Results (ICR) Report.
Improving access carries more weight than the other two elements since more than 70
percent of the budget and most of the level of effort was directed to support this objective
than the other two. Some of the targets were changed and new indicators introduced during
project implementation (see table below). The results framework for this ICR is based on the
revised framework adopted in 2007 when the project was restructured as well as mandatory
corporate indicators which were added later. The end-of project targets in the results
framework are thus those in the project paper of 2007. All baseline values are as of June
1999 except for mandatory core indicators which did not have a baseline as they were added
towards the end of the project. ICR reporting on the Outcomes at completion is based on
revised targets where applicable.
12.
Project outcome indicators as well as other key performance indicators (KPIs) and
targets were revised during restructuring in 2007 as explained before and summarized in the
table below.
Table 3. List of Original and Revised Targets at Restructuring (2007) by PDOs
PDO Indicators
PDO 1: Enabling laws and
regulations for MFIs

PDO 2: Increased access to


financial services by low
income populations
PDO 3: Greater efficiency in
judicial system (through
improved legal texts and
procedures)
PDO 4: Increased productivity
and improved standards of
living of microfinance clients
PDO 5: Appropriate
supervisory methodologies for
MFIs established

Original target at appraisal in


1999
Microfinance law and regulations
that reflect international best
practice are issued, adopted and
implemented
About 72,500 low income
families access financial services
provided by SLAs/MFIs

Microfinance law is effective and


regulations that reflect international
best practice are issued, adopted, and
implemented
Existing five SLA networks are
viable and able to offer services to
300,000 members

Liberalization of interest rates in


microfinance and simplification
of legal procedures for collateral
seizure
Impact study to confirm
improved standards of living

Liberalization of interest rates is


effective and microfinance collateral
is recognized in legal procedures for
collateral seizure
Impact study to confirm improved
standards of living of SLA members

All licensed MFIs are adequately


supervised by the authorities

N/A

Revised target in 2007

Table 4. List of Original & Revised Indicators at Restructuring (2007) - Project Outcome
Indicators
Intermediate
Outcome (IO)
Indicators
IO indicator 1

IO Indicator 2*

IO Indicator 3*

IO Indicator 4**
Core
IO Indicator 5**
Core
IO Indicator 6**
Core
IO Indicator 8**
Core
IO Indicator 9**
Core

Original target at appraisal in


1999

Revised target in 2007

Prudential rules are issued for all MFIs


Appropriate laws and regulations are Appropriate laws and regulations are
passed and implemented for all
passed and implemented for all MFIs.
MFIs.
Two existing SLAs (Fianaransoa and Toamasina) are strengthened) and two
new networks are created in Tana and Antsiranana and perform well.
Five SLA networks with 200 SLAs in
149 SLAs exist in at least 4
operation reach about 300,000
provinces. Total membership;
members of which 50% are women
72,469 members included 23,351 in
disadvantaged groups. Total savings and 25% from disadvantaged groups
Total savings reach US$25 million and
is US$3.5 and total loans is US$4.4
Total outstanding loans US$23 million.
million. MFIs are profitable.
All MFIs are operationally sustainable.
Build Capacity of microfinance through training
Training program delivers specially
80 people attended one or more
designed and adapted technical
external courses. Training program
tested and evaluated. 22 field agents modules to practitioners from all MFIs
in the country*.
and 46 professional staff are trained
Evaluation of program confirms
each year
increased knowledge and skills for
proper management of MFIs.
N/A
Financial Self Sufficiency (FSS)**
N/A

Portfolio At Risk (PAR or NPL)**

N/A

Outstanding Microfinance Loan


Portfolio**
Number of active loan accounts
Microfinance**
Active loan accounts for women**

N/A
N/A

* Revised indicator at restructuring


** New mandatory Core World Bank Indicators were introduced after 2007

1.5

Main Beneficiaries

13.
The main beneficiaries were the low income populations, particularly those in the
rural areas. The project was supposed to help make financial services available in four out of
six provinces in Madagascar to low-income households that lacked access to banking
services, thereby expanding their incomes and reducing poverty. MFI networks were
particularly targeted including womens savings and credit groups to help them reach an
estimated 72,500 low-income families (about 300,000 people) with adapted financial
services. Another group of beneficiaries were the Central Bank of Madagascar (BCM)
through the Banking Commission (CSBF) for supervision of microfinance, and the umbrella
6

microfinance Professional Association (APIMF) for the training program.


1.6

Original Components

The project had originally four technical components and one administrative component:
Component 1: Improve legal, judicial and regulatory framework (US$0.61 million)
14.
Success in the development of microfinance in Madagascar was dependent on the
ability of the government to improve the legal regulatory and judicial and supervisory
framework. Project funds were made available to (i) support preparation and enactment of
laws and regulations that supported development of an inclusive microfinance sector based
on international best practices; and (ii) establish competencies at the Secretariat of the
Banking Supervisory Commission for inspection of MFI networks rather than delegating this
function to an outside entity. This involved preparation of laws and decrees, intensive
training of supervisory authorities (courses, seminars, study tours and internships), MFI
Board members and MFI staff on the new regulatory framework, including prudential norms,
regulators roles, internal control, risk management and reporting.
Component 2: Develop MFIs (US$13.5 million)
15.
This component was allocated 82 percent of the International Development
Association (IDA) funding to support the development of five microfinance networks. The
funding was primarily used to finance resident technical assistance from international
microfinance capacity building providers (DID, WOCCU, IRAM) to strengthen the capacity
of MFIs to become efficient and viable financial structures. Funding also supported
operational expenses for the apex organization, vehicles and equipment, start-up costs for
MFIs branches, including expenses associated with the construction of office buildings, staff
salaries for the first year of operations, as well as training of staff and the Board.
Component 3: Build Capacity in microfinance (US$0.5 million)
16.
This component aimed to address the long-term goal of increasing the microfinance
capacity in the country through existing local training institutes and the umbrella association
for microfinance institutions. The funding supported training needs assessment, design of the
curriculum and training materials, study tours, internships, workshops and seminars for
practitioners. The training program was to breed a cadre of trained trainers and trained staff
managing the MFIs.
Component 4: Studies (US$0.92 million)
17.
This component was to support a number of audits, impact studies and feasibility
studies. Audits included financial and management audits of MFIs and the project
coordination agency (AGEPMF).
Component 5: Project coordination (US$0.90 million)
18.

Project coordination was undertaken by the Executive Secretariat of AGEPMF, an


7

independent agency created by Government decree. The Secretariat was made up of an


Executive Secretary, technical and administrative staff with responsibility of coordinating
overall project implementation. It is to be noted that a separate agreement was signed
between the Central Bank and IDA to allow CSBF - the unit in charge of microfinance
development at the Central Bank - to oversee implementation of component 1 (policy
reforms) of the project.
1.7

Revised Components

19.
Project components were not changed. As explained before (section 1.4 above) targets
and some indicators were revised at restructuring in 2007 for the additional financing. Also
additional core indicators were introduced (FSS & PAR or NPL).
20.
Targets under component 1 were revised to: (i) support the implementation of the
Microfinance law rather than a financial cooperative law passed previously as well as the
adoption of prudential regulations that were in line with industry best practice, and (ii)
strengthen the capacity of the Central Bank (CSBF) to properly supervise MFIs licensed
under the new law. A 10 percent of the additional financing went to this component to help
CSBF execute its mandate effectively. At closing, 32 percent of budget was utilized with
outstanding commitments yet to be paid.
21.
Targets under component 2 were revised to help MFIs (i) increase their membership
to 300,000 clients of which 50 percent would be women and 25 percent from disadvantaged
groups, (ii) increase savings to US$25 million, and credit outstanding to US$23 million, and
(iii) achieve operational self-sufficiency (OSS) for all partner MFI networks. Most of the
additional financing (74 percent) was allocated to this component and 95 percent of these
funds were utilized by the closing date in December 2010.
22.
Targets for component 3 were revised to include training of trainers (TOT)
curriculum and modules which was done with help from CGAP.5 Only 1.8 percent of the
additional budget was allocated to this component of which 88 percent was spent at closing.
23.
New targets for Operational Self Sufficiency (OSS) were established in 2007 during
restructuring for additional financing. Additional core indicators (FSS & PAR or NPL) were
introduced later.
1.8

Other significant changes (in design, scope and scale, implementation arrangements
and schedule, and funding allocations)

24.
The political crises and implementation of FSAP recommendations which were all
unforeseen at the design stage changed the scope of the project and directly contributed to
the lengthy implementation period of eleven years. The microfinance project was initially
planned to close on December 31, 2004. The project closing date was extended five times
with the final closing date being December 31, 2010. The project was restructured in 2002

CGAP = Consultative Group to Assist the Poor is a leading microfinance think-tank involved in setting standards
and providing training in microfinance.

due to unsatisfactory performance on implementation resulting from the first political crisis
and again in 2007 to implement FSAP recommendations as explained below. Restructuring
and preparation of the additional financing also contributed to the lengthy implementation
period.
25.
The first two closing date extensions were for one year each from December 31, 2004
to December 31, 2005 and then to December 31, 2006. These extensions were justified by
consequences of the December 2001 Presidential elections crisis that led to a slowdown in
project activities and disbursement; hence the need for reallocation of project funds including
increasing the amount of the authorized allocation for the project coordination unit
(AGEPMF).
26.
The third extension was from December 31, 2006 to June 30, 2009. The scope of the
project changed when FSAP (2005) recommended that microfinance project be part of the
larger financial sector project (PASEF). In 2005, the World Bank/IMF Financial Sector
Assessment (FSAP) Report had identified persistent lack of access to finance for micro,
small and medium enterprises (MSMEs) and the need to design a broader financial sector
program that would support banks and non bank financial institutions including microfinance.
When the Government of Madagascar was ready to implement these recommendations in
2006 through a sector wide Financial Service Project (PASEF), an agreement was reached
with the Bank to consolidate operations and have Phases 2 and 3 of the microfinance APL
folded into the PASEF. The microfinance project had achieved overwhelming results at this
stage (end 2006) and MFIs had proved to be making very good progress towards
sustainability.
27.
This third extension to June 2009 (at the request of the Government of Madagascar)
allowed the project to complete some key activities and to continue to provide support to the
microfinance sector in the absence of a phase 2 APL due to IDA constraints. The
microfinance project was, thus, restructured in 2007 when additional financing of US$5
million was approved as bridge finance to facilitate smooth transition of microfinance project
to PASEF which was still in preparation as a Specific Investment Loan (SIL). This ensured
continued financial support and technical assistance to avoid a serious risk of systemic
failure of the microfinance sector if assistance was to be stopped abruptly (the networks
supported under the project accounted for over 70 percent of all microfinance savings in the
country).6 The supplemental credit was approved by the Board of Executive Directors on
April 10, 2007 and was ratified by the Parliament of Madagascar end-June 2007. Tables
below show project financing provided during the life of the project including sources of
funds.

Refer to ISR #18 of the microfinance project for more details.

Table 5. Financing Breakdown by Component


Original
Financing
(SDR)
416,300

Additional
Financing
(SDR)
340,000

Total
Financing
(SDR)
756,300

Total
Financing
(US$)
1,164,702

8,005,938

2,520,000

10,525,938

16,209,945

C. Build Capabilities in
Microfinance

725,193

60,000

785,193

1,209,197

D. Conduct Studies

610,337

110,000

720,337

1,109,319

E. Coordinate Project

982,328

360,000

1,342,328

2,067,185

70,000

10,000

80,000

123,200
0
21,883,548

1.9
A. Improve legal, judicial, and
regulatory framework
B. Develop MFIs

Equipment
PPF
Totals
Project burn rate at closing

10,810,096
100%
(in 2006)

3,400,000
14,210,096
86%

December
2010 & 94%
April 30, 2011

Exchange rate used: SDR 1 = US$ 1.54


Slight variations are observed on the total budget due to the exchange rate effects.
Extension to spend beyond closing date was approved up to April 2011 which resulted to 94 percent burn rate when the credit closed.

Table 6. Breakdown of sources of funds (US$)

IDA (US$)
Government
(US$)
Other Sources
(Short Term
Debt)
TOTAL

From
1999 to
2004
8,321,835

2947917

913,890

2005

2006

2007

2008

2009

1265815

5041595

2281996

20,081

5078

34676

22117

796,152

1,300

-386860

14038

-235911

143328

10,031,877

2,971,303

886,040

554,881

2,070,211

227,368

82031

2010
1628848

1,630,858

Cumulative

17,032,603

93

995,842

332,046

18,360,491

100

Source: Project documents (AGEPMF progress report April 2011)


Notes: Conversion rate US$1 = MGA 2000. Totals are slightly different from project documents due to exchange rate fluctuations.
It is not clear in the report what the source of the short term (ST) debt was.
Also Government contribution quoted beyond the APL phase (may include the office space and salary of project coordinator who was
government employee)

28.
The fourth closing date extension period was from July 1, 2009 to June 30, 2010,
which was followed by the fifth and last extension of six months to December 31, 2010.
These two extensions were due to the political crisis that hit Madagascar following a coup in
March 2009 and were to allow the project to remain open through the crisis period. The crisis
led to the country operating under World Bank Operational Policy OP 7.30 which caused
interruption in project activities due to lack of funds in the designated/special accounts.
29.
Finally when the OP 7.30 was waived (for a select group of projects including this
project), it was crucial to have a six months extension to facilitate payment of all the arrears
that were due to diverse entities, including partner microfinance institutions as well as
10

project staff. The disbursement ratio reached 94 percent at end of April 2011 after the fourmonth grace period given to the project for disbursement.
Table 7. Additional Financing Cost Breakdown & Disbursement Rate (December 2010) by
Component

Additional Credit
(Restructuring
Stage 2007)

Actual
Expenditures
(Additional
Financing)
December 31,
2010

Burn Rate
on
Additional
Financing
(December
31, 2010)

Percentage
of
Additional
Financing to
Each
Component

0. 2

0.07

32%

10%

1.6

1.55

95%

74%

C - Equipment

0.01

0.01

90%

0.30%

D - Build Capabilities in
Microfinance

0.04

0.03

88%

1.80%

E - Conduct Studies

0.07

0.05

75%

3.20%

F - Coordinate Project

0.23

0.16

68%

11%

TOTAL FINANCING

86%

1.10

A - Improve legal,
judicial, and regulatory
framework
B Development of
MFIs

Exchange rate used: US$ 1 = SDR 1.54


Slight variations are observed on the total budget due to the exchange rate effects.

30.
The Development Credit Agreement (APL phase 1) was amended once during
implementation on January 23, 2003 to update the disbursement table and provide, inter alia,
for a temporary 12-month increase in the disbursement percentages of certain categories of
expenditures, increased the amount of the authorized allocation for the project
implementation unit (AGEPMF) special account, and provide for the regular preparation and
transmission of financial monitoring reports.
31.
A major change on project management took place in 2007 during the restructuring
for additional financing7 when the Government was allowed to nominate one of its staff to
become the Executive Secretary of the PIU.

See Project Paper on Proposed Additional Financing (Report # 38892). This decision was made to support
Governments agenda on implementation of Paris Declaration on Harmonization and Alignment for Development
Results

11

2.

Key Factors Affecting Implementation and Outcomes

2.1

Project Preparation, Design and Quality at Entry

32.
The Microfinance program was prepared at a time when Madagascar was in need of
alternative instruments to complement macro reforms and spur equitable growth. In the
1990s when the economic reforms supported by the World Bank were shaping the
macroeconomic future of the country, financial sector reforms left the majority of the
population, particularly the poor and rural areas, without access to financial services.
33.
The project design supported the financial sector CAS (document number 16249 of
February 1997) goal which was to improve savings and support economic expansion, and
raise the low level of financial services, especially outside key urban centers. Project
preparation took into account the Bank's financial sector reviews and worldwide experience
that identified reasons for insufficient and ineffective provision of financial services in
Madagascar to lower income clients.
34.
The design was intended to mitigate key constraints to financial access; particularly
the access gap for the poor in rural areas. The design was cognizant that: (i) private
commercial banks were lending only to well-established clients because of limited
competition in the sector, their business philosophy and negative perception of country risk;
(ii) transaction costs of microfinance programs were high; (iii) low-income clients generally
lacked collateral and were unknown to the banks, which made it difficult to assess their
ability and willingness to repay; and (iv) the legal and judicial systems were not developed
and contract enforcement was difficult.
35.
Project design was anchored upon lessons emanating from the financial sector reform
process and from a tested rural finance approach through the RFTAP pilot project and what
other donors were doing in the country. As already mentioned, the lending instrument, a 15year APL was quite appropriate as the projects aim was to address the long term
institutional and policy constraints that hindered access, which needed time to bear results.
For a program that aimed at supporting microfinance institutions (MFIs) to become
sustainable, international experience has proved that long time is required to achieve such a
goal.
36.
The project was kept relatively simple by focusing on microfinance issues rather than
expanding its mandate to other sectors of the financial system such as banking and insurance.
The project was designed to allow for gradual expansion to the rest of the country based on
feasibility studies and the pre-identified triggers (see PAD April 1999)
37.
Assessment of risk by project team was adequate at project preparation. The team
properly identified risks related to the appropriateness of reforms, adequacy of training being
offered, and interest of populations to become microfinance clients. For example the design
of the microfinance reform agenda focused on improving the existing banking laws to fit the
needs of the microfinance sector instead of pushing for a new and parallel reform agenda,
which could have taken long time with risk of laws not being passed expeditiously (as was
the case with a new law on usury which is yet to be passed after eleven years of project
12

implementation). Expansion to new provinces and sites was to be preceded by feasibility


studies to appraise economic potential, clients demand and supply capacity required for
effective interventions.
38.
The design was cognizant of the risks associated with poor institutional and
absorption capacity of key stakeholders to implement reforms and to develop a sustainable
microfinance program that targeted the low-income segments. The design embedded
intensive technical assistance and capacity building in the core components of the project to
mitigate these risks. One of the outstanding design features was the emphasis on institutional
and capacity development, legal and regulatory reforms as a foundation for building a sound
and sustainable microfinance practice in the country. This resulted for most of the project
indicators being qualitative with just a few on quantitative mainly focusing on the
microfinance outreach and portfolio quality.
39.
However, the design failed to assess the risks of the other phases of the APL not
materializing as well as political instability in the country. Although the microfinance
program took off from a stable political environment in 1999, the PAD did not foresee the
political unrests that twice hit the country and hampered the speed of program
implementation. Nevertheless, during the two political crises of 2001/2002 and 2009, MFIs
remained resilient and continued to operate, albeit under difficult conditions and increased
risk to their loan portfolio. This resilience is attributed to the design of the project which put
core functions of MFIs management in the hands of their member-shareholders.
40.
The design of the additional financing also failed to see the risks associated with
allowing8 the Government to nominate a public servant to lead a team of experts paid by the
project on terms that were not similar to those of the government. The design did not spell
out a strict selection criteria for such a nominee which could have also ensured that the
nominee had competencies required to lead a complex financial sector project.
2.2

Implementation

41.
Project implementation started on a good footing. However, after relatively good
progress made during the first two years, implementation progress was downgraded to
unsatisfactory. The implementation period between 2001 2009 experienced significant
grueling events (political crisis and restructuring in 2002, MTR in 2004 leading to the an
extension of the closing date, the death of the project coordinator and recruitment of
replacement, restructuring for additional financing and the second political crisis and
financial crisis in 2009) that triggered ad-hoc changes which impacted the speed and
relatively the quality of project implementation.
42.
The political crisis in December 2001 affected the speed of implementation and posed
certain institutional risk to MFIs. Several microfinance networks experienced liquidity
constraints due to the freezing of their reserves by the monetary authorities that were unable
to redeem the treasury bonds on schedule. MFIs also suffered from a high proportion of non-

See Project Paper on a Proposed Additional Financing ( Report #38892 MG)

13

performing loans resulting from exogenous factors in the borrowers business environment.
In addition, one of the MFI (Toamasina) temporarily lost its technical support when the
contract for the technical assistance agency (provided by DID Canada) expired in the middle
of the crisis and could not be renewed. The project coordinator also died. Project activities
slowed down until another qualified coordinator was hired. The project was restructured as
well as some of the MFIs, and the closing date was extended. The mid-term review in
February 2004 thoroughly appraised the request by members to split the Toamasina
microfinance networks into two (Tamatave and Lac Alaotra) to ease implementation. The
technical assistance program was also redesigned to accommodate these changes.
43.
The political crisis of 2009 negatively affected the profitability and sustainability
levels of MFIs. It also resulted in delays in implementation that led to two extensions of
closing dates. Some of the MFIs that were operationally self sufficient experienced losses.
The overall ratio of Non Performing Loans (NPL) reached peak levels (14 percent in 2009
against the sector norm of five percent). This reduced both the operational and financial self
sufficiency ratios of the MFIs. The project which was rated highly satisfactory (2005 June
2007) and satisfactory (December 2007-December 2008) was subsequently downgraded to
moderately satisfactory. Risk mitigation strategies (curtailing loan underwriting, intensive
savings mobilization, revised/tight loan appraisal/client risk assessment etc.) applied by
MFIs reversed the performance in 2010 to an overall positive profitability (overall) and
sustainability indices. The NPL ratio was reduced to 10 percent (4 percent positive leap in
just one year). This was an indication that technical assistance provided to MFI networks by
international technical assistance providers was well assimilated and had increased risk
management capacity of local MFI staff.
44.
Governments commitment for the microfinance project remained generally strong
during the life of the project especially through positive policies and strategies for the
microfinance sector. However, some factors subject to government control affected project
implementation. Government counterpart funds were often disbursed late due to bureaucracy
and liquidity problems at the treasury resulting mainly from the political crisis. On
governments request the counterpart funds were waived during the 2007 restructuring to
speed implementation.
45.
The transition government in power after the 2009 political crisis has not been an
effective partner in project implementation. Recommendations made by several supervision
missions and audit reports were neither effectively followed upon nor implemented as per the
signed agreements between IDA and the government. This contributed to the deterioration of
project management and coordination (in the last three years) under the leadership of the PIU
coordinator who is a government employee.
46.
Poor leadership at the PIU also affected the quality and speed of project
implementation after 2007. Project reports were often submitted late and auditors
recommendations were not implemented. Auditors recommendations (2009) had reiterated
the need to hire an internal auditor and procurement specialist to fill the vacant position left
by the previous staff who had left the project. This was not implemented despite several
recommendations made by World Bank supervision missions. Inefficiencies were noticed in
internal control systems (undocumented equipment transfers and weak procurement capacity).
14

Poor staff morale was evident during the ICR mission. 9 The ICR mission observed
unsecured project documents in unlocked offices in the office building which is shared with
non project staff. There are also allegations of improper conduct by the Project Coordinator
(Anonymous email communications were sent to the World Bank and were shared with INTthe Integrity Unit).
47.
Despite the deteriorating leadership at the PIU, implementation of key project
activities continued and most of the targets were achieved, even exceeded in certain cases.
Fortunately, the policy component (component 1) which was directly implemented by the
Central Bank was smoothly implemented and contributed to the impressive results achieved
under that component. Also, the MFI Networks whose technical capacity had improved over
the years, and their financial resources (owners equity) had significantly grown (savings and
retained earnings) used their own funds and human capital to implement project activities
under the improved access component (component 2) and produced outstanding results.
As explained in other sections, the reason for the final closing date extension (June 30, 2010
to December 30, 2010) was to facilitate reimbursements of outstanding contracts to
consultants as well as MFI Networks who had used their own funds during the crisis to
implement activities (earmarked for funding by IDAs additional financing). Most of the
credit for the project results achieved since 2007 when the project was restructured for
additional financing goes to the Central Bank and the MFI Networks who were resilient and
consistent with implementation amidst the deteriorating leadership at AGEPMF.
2.3

Monitoring and Evaluation (M&E) Design, Implementation and Utilization

48.
The M&E design of the project was generally adequate and had sufficient indicators
to monitor progress towards achieving outcome and impact of the PDO. Quantitative and
qualitative indicators were defined to be tracked by the different key stakeholders (MFI
networks, Central bank and APIMF for training). For example, the resident technical
assistance (TA) providers were given contracts based on the performance of the MFI
networks. The indicators for these performance-based contracts went beyond those indicated
in the PAD to include for example measuring knowledge transmitted from the TA providers
to local personnel. This encouraged speedy transfer of knowledge to Malagasy staff who
today is instrumental in managing these viable MFI networks. The nature of the project
which had significant level of effort on institutional and capacity building, legal and
regulatory made it necessary to have many qualitative indicators and few quantitative ones to
monitor outreach and portfolio quality (one component out of four of the project).
49.
The design, however, failed to define specific units of measure meant for the
increased productivity and improved standards of living of the beneficiary households,
which would have helped objective tracking of social impact in these two areas. The impact
study 10 for the project could have benefited from such a framework to better inform and
influence improvements of the project design during the second restructuring in 2007. The

Staff claimed of delayed approvals for resources required to effectively implement project activities (e.g.
computers, vehicles and office space etc.).
10
AGEPMF Impact Study FACET BV, Supporting Small Enterprises: Rapport de ltude dImpact de la micro
finance a Madagascar

15

monitoring and evaluation (M&E) design was also vague on the issue of women targeting.
Although the system scored highly on clarity regarding the 50 percent share of women
beneficiaries, the design did not provide objective selection criteria for the 25 percent (from
this segment) which was to come from the most disadvantaged groups. At restructuring in
2007, the system could also have clarified and provided quotas for site or short and fixed or
long term savings/deposits as this could have improved the measure of efficiency on
institutional development of MFIs. For example the Diana microfinance network which had
high share of long term deposits (85 percent of total savings) also had higher efficiency and
efficacy ratios (OSS 158 percent & FSS 122 percent) suggesting a correlation between long
term savings and institutional sustainability.
50.
Overall, the project could have benefited if more than one impact study were
conducted throughout the eleven years, including one towards the last year of project
implementation (under the additional financing). The design fell short of social and poverty
indicators to be tracked which would have helped to sharpen social targeting progressively.
The methodology for such tracking was also not defined. As a result, the impact study
(2005) had a limited scope and was not able to effectively inform and influence the design of
subsequent phases. Notwithstanding the weaknesses, the nature of the project which
provided financial services to thousands of micro-borrowers mainly in rural areas and for
activities in sectors such as agriculture, fishing, trade and agro-equipment, posed a challenge
to measure overall increased farm productivity, income and employment creation impact.
Annual surveys and another impact study towards the end could have shed more light on
social impact of beneficiaries, but the political unrest made this a difficult task to undertake.
51.
M&E implementation was adequate especially on the well-identified indicators of
MFI networks outreach; institutional development, portfolio quality and risk management,
legal, regulatory and judicial framework and on capacity building. Although majority were
qualitative, the quantitative ones on MFI networks performance were very focused and
objectively targeted and were based on microfinance sector internationally accepted
norms/best practices used to measure performance and sustainability aspects of MFIs and
microfinance programs. Data was collected from several sources including microfinance
institutions, AGEPMF, the Central Bank and APIMF (the professional association for MFIs).
Project reports were periodically verified by external auditors, Financial Management and
supervision missions.
52.
M&E utilization was collaborative and participatory, which helped to redirect certain
project operational plans as was the case when reports from one MFI network prompted the
need for splitting into two for effective implementation. Quarterly reports from microfinance
networks to AGEMPF (the coordinating unit) were used to revise work plans, including
additional technical assistance to MFIs based on individual strategic needs. In several
occasions especially towards the end of the project reports from the project and the
Government were late or not produced. As such views from the Borrower (Government)
were not effectively utilized in project implementation and planning especially in the last

16

three years of implementation.11 The final activity report (December 2010) from AGEPMF
was received late (in May 2011), and the completion report from the Government was not
received as input to the ICR. Also, data from some of the MFIs that do not have a
computerized portfolio tracking system needed to be verified by project staff and the auditor
before they could be utilized for analysis and incorporated in the ICR for reporting. Despite
these shortfalls, the M&E reports were useful for the ICR preparation and they provided an
opportunity to share microfinance best practices with counterparts during the data collection
exercise.
2.4

Safeguard and Fiduciary Compliance

53.

The project was classified as Category C which triggered no safeguard policies.

54.
Fiduciary compliance with the Bank policy and procedural requirements were
satisfactory in general. Project financial reports were received regularly and judged
satisfactory by the Bank. Annual program audits (Project coordination and MFI Networks)
were conducted and reports produced on time with comprehensive auditors expertise
opinion. In most cases, audit recommendations were implemented swiftly by the Project
coordination unit (AGEPMF) and the Government. IDA financial management specialists
were involved in program implementation, including in the restructuring and monitoring of
the implementation of key audit recommendations. The Banks team undertook several post
procurement reviews which uncovered ineligible expenses made by the project coordinator
on one occasion.
55.
Financial management: AGEPMF was generally capable of fulfilling financial
management requirements. However, due to the political crisis the project run out of money
when its special/designated account could not be replenished because the country was under
OP 7.30. For about a year, project staff could not perform their fiduciary duties due to a lack
of funds. Fortunately, the project team that was kept in place during the crisis resumed its
monitoring and fiduciary activities when the project was finally granted an extension of the
closing date to December 2010. Nonetheless, some recommendations made by auditors in
previous audit reports were not properly addressed. For example, the hiring of a full-time
internal auditor did not take place as recommended due to refusal by the Project
Implementation Unit (PIU) leadership to implement these recommendations despite repeated
requests from the supervision missions.
56.
Procurement: The Project Coordination Unit (AGEPMF) and the Government
complied with procurement guidelines in general although towards the end of the project
there were problems noticed in compliance with auditors recommendations. The auditors
had recommended hiring of a procurement officer to replace the one who left the project
during the crisis which was not implemented as already explained.
57.
Borrower Commitment and stakeholder involvement. The project was requested
and actively supported by the Malagasy government and consultations with the private sector
11

It is to be noted that in 2007, the Government was an effective partner in the restructuring for additional finance
including in 2008 launching of the Financial Sector Project (PASEF).

17

and civil society were extensive. The Government's strategy for microfinance was spelled out
in its Letter of Development Policy of April 1999. The objective of improving access to
financial services was part of the financial sector strategy. Reflecting this commitment, the
Government had encouraged private initiatives in support of MFI development and enacted
legislation promoting and regulating MFIs under the Rural Finance Technical Assistance
Project (RFTAP) upon which the microfinance project was built. The Government had
committed MAG 1.8 million as contribution although this was later stopped at the
Governments request who had difficulties respecting its commitment for many IDA projects
in Madagascar including microfinance. The co-financing (government contribution) was,
thus, waived by IDA at project restructuring in 2007 in order to speed up implementation.
58.
Sustainability and Risk assessment: As mentioned in prior sections, the
identification and assessment of risks were appropriate, as well as the proposed risk
mitigation measures. The main risks identified were: (i) the possibility that CSBF would
apply the sophisticated bank supervision tools to supervise MFIs; (ii) the structure and
decentralized nature of MFIs would make supervision labor-intensive and costly for CSBF;
(iii) the lack of capacity within (SLAs) MFIs; (iv) the lack of interest from the population to
join SLAs due to government subsidized programs which offered grants or interest free loans
to the poor; (v) the delayed implementation of the policy and regulatory framework for
MFIs; (vi) the poor risk management systems by MFIs; and (vii) the SLAs not reaching
intended growth and outreach (membership, deposit and loan volumes). All these risks were
rated modest except item (iv) which was negligible. The overall risk rating was, therefore,
modest.
59.
Adequacy of participatory process: The process during the design stage was
adequately participatory, with all important stakeholders involved, especially the SLAs and
the Central Bank that later played a critical role in making the key components of the project
(policy and access) successful. Consultations were held with the private sector, including
consulting firms, research and training institutions, and key donors. Other donors pledged
about US$1.9 million to the project. Participation by the primary beneficiaries, the members
of SLAs and MFI networks was sought. MFI networks were very committed to the project
and they proved to be effective partners throughout implementation and much so during the
political crises. This commitment was demonstrated through the willingness to share costs
(US$0.2 at design stage) and to gradually take full responsibility of managing rural banks
without donor subsidy.
2.5

Post-completion Operation/Next Phase

60.
As already mentioned, the microfinance project was not implemented as originally
planned. Towards the end of the first phase of the 15 years APL, the FSAP report
recommended that a broad financial sector program be designed to take into account the
evolving dynamics in the financial sector. Non bank financial institutions were growing and
increased financial intermediation was necessary. The new financial sector program was to
support other financial services, support development of new products/segments (pension,
insurance, bank downscaling, leasing, payment systems and microfinance institutions in
general). The microfinance project was to be mainstreamed into the new financial sector
program with a broader scope. The remaining two phases of the microfinance program were,
18

thus, folded into the Financial Services Project (PASEF) that became effective in November
2008. To date, however, implementation of PASEF has stalled due to project coordination
problems.
3.

Assessment of Outcomes

3.1

Relevance of Objectives, Design and Implementation

61.
Relevance of objectives is rated Satisfactory. The microfinance project design was
anchored upon the Government of Madagascars goals of poverty reduction and equitable
growth that required increased focus to rural development. The project objective of
increasing financial services to low-income populations who do not have access to
commercial banks was and remain relevant to the overall government priorities and policies
as well as to those of the Bank especially as political strife continue to increase the
vulnerability of the low-income populations. The access gap is still high as only 35 percent
of low income households (about 80 percent of the population) have access to depository
services and 2 percent to formal credit channels (IMF, 2006).
62.
The project is in line with the objectives of the CAS (2007-2011) and the Madagascar
Action Plan (MAP 2005-2012). One of the objectives of the MAP is to improve access to
affordable rural financing through the establishment of more microfinance institutions in
rural areas to increase outreach to the low-income population at affordable cost. One of the
MAP targets is to achieve rural banking penetration of 12 percent by 2012. Governments
financial sector and microfinance sector strategies continue to reinforce the need for
broadening and deepening financial services to the low-income population particularly in
rural areas. The microfinance strategy targets to have 50 percent of women as beneficiaries
of the microfinance services offered in the country.
63.
The project components were relevant and consistent with project objectives as they
were aligned to support improvements in access, policy and capacity which are critical for a
healthy microfinance sector development. The project design defined realistic outcome
indicators and activities at policy, sector and MFIs levels which were practical and
responsive to the immediate and long-term development needs of stakeholders involved in
the implementation of the microfinance project. For example the component on policy
agenda influenced change in laws that created a strong legal, regulatory, judicial and
institutional foundation required for developing a sound microfinance sector. Aligned with
the banking law (1996), the Central Bank was given the supervisory role of MFIs with clear
mandate including definition of prudential norms for regulation of the different types of
microfinance institutions. These factors facilitated an orderly growth of the microfinance
sector in Madagascar.
64.
The design was cognizant of the need for balance between institutional and capacity
development as a fundamental for improved access to financial services. The component on
development of microfinance institutions supported construction of rural branches provided
the technical assistance and capacity building to MFIs which significantly contributed to the
increased access to financial services for the low-income population especially in isolated
areas. Implementation arrangement which was done through decentralized systems managed
19

by shareholders (low-income population) increased customer loyalty and contributed to MFIs


growth. Financial services (savings facilities, access to pension funds and credit) were
within the proximity of the low-income population as most of the branches were constructed
in isolated areas with economic and social potential.
65.
This decentralized implementation was a determinant on the reduced cost of
borrowing (interest rate in the microfinance industry is on average 15 percent compared to
more than 80 percent which was charged in the informal sector in 1999) 12 and increased
outreach to thousands of low income population with diversified products. The project
impact study13 reported that microfinance institutions were the only source of financing (57
percent of the 597 respondents in four provinces) in the localities covered by the survey.
Focus group discussions (ICR mission) indicated that MFIs are the preferred depository of
funds by the low-income population. Supported MFI networks continued to play a critical
role in mobilizing local savings (US$28 million). Inter MFIs network lending14 among MFI
networks and high growth rates on savings (savings are growing at more than 20 percent per
year) contributed to the increased financial intermediation and access as envisaged in the
project design. The accessibility measure of within 10-30 radius kilometers was used to
derive the high banking penetration rate.15
66.
The component that dealt with building capacity in microfinance sector was quite
effective as implementation was done through an umbrella microfinance association (APMF)
which ensured a wider outreach and systematic institutionalization of the capacity
development in the country. The implementation arrangement for this component was in
compliance with the national microfinance strategy which prompted the creation of the
umbrella association as a vehicle to coordinate microfinance capacity development in the
country. The design of the training and institutionalization of the curriculum was supported
by CGAP which ensured that this was implemented according to international standards.
Implementation of this component was instrumental in creating microfinance capacity, a
public good (human capital) in the private sector that have revolutionized the microfinance
practices in Madagascar.
67.
Although the project had design weaknesses on tracking and measuring social impacts
and at restructuring in 2007 had established ambitious sustainability indicators (operational
self sufficiency) for MFIs, the project objectives, design and implementation arrangement
remains relevant and is well aligned to support the goals of reducing widespread (75 percent)
poverty in Madagascar by continuing to establish microfinance institutions and policy
reforms initiated by the World Bank-financed Rural Finance Technical Assistance Project
(RFTAP, Cr. 2459-MAG), designed in 1993. The project implementation is tailored towards
achieving indicators that will contribute towards achieving governments goals of financial

12

PAD description.
AGEPMF Impact Study 2005 by FACET BV.
14
Lending among MFI networks of average US$425,000 per year is reported in the last three years which was a
slow lending period. Normally the average is above US$500000 per year.
15
AGEPMF: Impact Study2005 by FACET BV.
13

20

deepening in rural areas.16


68.
Despite the effects of the current political crisis which had a negative impact on the
economy, the primary sector has been resilient with an exceptional rice harvest in 2009 (up
by 40 percent from 2008 levels), and the project contributed to this more than 50 percent of
agriculture activities financed by the project in rural areas were for rice farming. Support to
the financial sector reform agenda contributed to the rapid growth of the microfinance sector
as improved laws continue to facilitate ease and organized entry and sound supervision by
the regulatory authorities.
3.2

Achievement of Project Development Objectives (PDOs)

69.

The achievement of the PDOs is rated Moderately Satisfactory.

70.
The key objective of the project was to increase access to financial services to the
low-income population not served by the traditional banking sector.
71.
The key achievement of this objective was improved access to financial services by
low income population particularly in rural areas. The project established decentralized
financial institutions (MFI networks) mainly in rural areas (85 percent of supported MFIs are
rural based). 236 MFI branches (against 59 in 1999) were in place offering credit 17 and
savings services to 391,538 (against 22 818 in 1999) low-income members at affordable cost
in Toamasina, Lac Aloatra, Fianarantsoa, Antsiranana (Diana), and Antananarivo. These
branches are affiliated to five microfinance networks. Through affiliations the MFIs created
optimal scale and lowered operational costs which contributed to their positive progress
towards sustainability. At project closing, all MFI networks were on average operationally
self sufficient and some had even achieved financial self sufficiency (FSS) above the 100
percent breakeven point (see Annex 2 for details).
72.
As indicated earlier, it took more than 10 years to implement the project. The APL
financing instrument was dropped for subsequent phases of the project to be implemented
under a SIL and the additional financing introduced a new phase to the project. These factors
make it necessary to use the weighting method in order to objectively appreciate outcomes at
each stage. The same method has been used to rate project efficiency and overall outcome of
PDO in sections 3.3 and 3.4 respectively. A combination of key outreach, sustainability
(OSS) and social indicators18 has been applied in the rating.

16

Governments goal in the MAP is to increase bank penetration rate from 6 percent (2005) to 12 percent by 2012.
Loans financed activities in trade, agriculture including equipments, transportation (bicycles, animal pulling carts
etc), warehouse construction, hording of agriculture produce for post harvest boom prices (warehouse receipts) etc.
18
No targets were established but in comparison to the non project participants (see a summary of impact study
results in Annex 2, Table 20), the project scores highly on social improvements by beneficiaries.
17

21

Table 8. Achievement of Performance Indicators of MFI Networks (Pre and Additional


Financing Eras)
Indicator

Number of SLAs
(MFI Branches)
Number of
Members
Savings (MGA
000)
Outstanding Loan
(MGA 000)
Operational Self
Sufficiency*
Improved Standard
of Living
Indicators
Access to portable
water****
Utilization of
latrines
Capacity to pay for
medication in case
of need****
Frequency of
protein
consumption
(meat, fish, eggs)
****
Net schooling
rate****
% of families with
children who are
not schooling ****
OVERAL PDO
RATING

Pre Additional Financing Era (1999 2006)


Percent
Targets Achievements
Change
PDO
Baseline
*
**
(against
Rating
targets)
59
102
157
53%
HS

Additional Financing Era(2007 2010)


Percent
Targets Achievements
Change
PDO
***
2010**
(against
Rating
targets)
225
236
4.8%
S

22818

72469

171900

37%

HS

332055

391538

17%

HS

1675

227

24322

HS

52000

57403

10%

HS

1103

836

16000

HS

46364

45819

(1.2%)

MU

n/a

156%

Above
10000%
Above
1000%
156%

HS

122%

106

(14%)

n/a

85%

HS

n/a

n/a

89.4%

HS

n/a

HS

n/a

n/a

n/a

72%

HS

n/a

n/a

100% of 94%
interviewed
6%

HS

n/a

HS

n/a

n/a

HS

Source *: PAD Report #38892.


Source**: AGEPMF progress report, April 2011
Source***: Project Paper #38892 MG Exchange rate : 1US$ = 2000 MGA
****No targets were established in the PAD. Impact study interviewees attributed these improvements to the support provided by the project
(loans, savings, training etc).

22

MS

Table 9. Overall Weight

Outcome

2
3

Rating Value
Weight (% disbursed
before/after
restructuring)

4
5

Weighted value (2 x
3)
Final rating
(rounded)

December 2006
Disbursed Against
Original APL in 2006
(phase 1 5 years)
Highly Satisfactory

December 2010
Disbursed Against Additional
Financing (restructuring era
2007 2010)
Moderately Satisfactory

6
US$15m (fully disbursed) +
US$ 4.3m (additional
financing disbursed at
closing) = US$19.3m
US$15m/19.3m *100 = 0.78

4
US$5m*86% (disbursed at
closing) = 4.3m + UD$15m
(original) = 19.3m

6 * 0.78 = 4.68

US$4.3m/US$19.3m*100 =
0.22
4 * 0.22 = 0.88

December 2010
Overall Outcome
Rating
Moderately
Satisfactory
Total project budget
= US$20 million
Total disbursed at
closing = US$19.3
million
5.56
5 (Moderately
Satisfactory)

Although the rounded figure suggests a satisfactory rating on the achievement of PDO, it is conservatively rated moderately satisfactory due to
lack of updated social impact data at closing.

73.
Access to reliable sources of financial services (savings, credit and pension funds) for
the low income population is within proximity of their enclave localities and at affordable
price. The project significantly contributed to financial deepening and broadening as
evidenced through high outreach, portfolio growth indicators and the financial intermediation
at the MFI networks level. The impact study19 which covered the four provinces reported
average banking penetration rate of 11 percent in 2005 (up from less than 1 percent in 1999)
proving the relevance of this project in reducing the access gap especially to the unbanked
rural. The penetration rate achieved is impressive and above that achieved by peers in subSaharan Africa (SSA) as shown below.
Table 10. Top Ten Countries in Borrowers and Savers by Penetration Rates

Source: Africa Microfinance Analysis and Benchmarking (CGAP 2008).

19

AGEPMF Impact Study August 2005 by FACET BV.

23

74.
Credit to small-scale rice growers and other agro-business improved food security as
reported in the impact study and provided an additional source of income for the low-income
population through employment (67 percent of the 372 members interviewed reported
employing one or more persons). The impact study reported that enterprises financed
through loans from the supported MFIs created the much needed employment in rural areas
especially seasonal jobs in the rice paddy farms (see results framework in Annex 2 for
details).
75.
The average loan size was below US$500 which bodes well with poverty targeting
goal of the project demonstrating that the supported MFIs did not drift from their original
mission of social targeting. MFIs demonstrated their commercial orientation through
diversification, appropriate pricing and efficiency which rendered them sustainable and
attracted commercial sources of funds as well as inter MFI network lending,20 which has
increased financial intermediation and further expanded the outreach.21
76.
An approach to targeting vulnerable population was developed and integrated in MFIs
lending operations, which contributed to increased access and portfolio growth for women.
Savings and Credit Associations (about 234 women associations of six to ten members were
formed and mainstreamed in the core operations of MFIs) for the poorestparticularly
women in very isolated areaswere created and have been mainstreamed to the core
operations of the microfinance networks as originally envisaged. These associations mainly
targeted the low income women who had no prior experience with savings and credit in rural
areas in most of the provinces (four out of six). Intensive training to these groups was part of
the support provided under this objective to ensure inclusive access was achieved.
77.
Outreach and portfolio indicators were steadily growing and they exceeded PAD
targets under the two periods (pre and post additional financing eras) except for outstanding
loans which were below targets at closing as explained in the tables above. For example,
membership growth was 18 percent and savings 10 percent above additional financing targets
at closing and women membership target of 51 percent was effectively achieved. Access
to loans was steadily growing (except in 2009/10 due to temporary portfolio risk
management policies introduced) with outstanding portfolio worth US$23 million at closing.
The retired populations in remote areas are able to access their monthly pension payments
through MFIs in their respective villages hence less travelling cost and more available funds
to spend. Given this broad and deep access to financial services as illustrated by these
indicators, the project clearly fulfilled this objective well.
78.
Although the objective was achieved, the MFI networks are facing a serious
operational risk due to the high non performing loan (NPL) ratio (core indicator). The NPL
rate of 10 percent, which decreased from 14 percent in 2009, is still above the 5 percent
international industry standard. This is approximately 90 percent overall repayment rate.
Notwithstanding the effects of the political and financial crisis, the high NPL rate is a

20

The volume of lending among MFI networks was more than 60% of total external debt of all MFI networks (2006
2010).
21
Interviews during ICR data collection confirmed that MFIs borrow funds from investment funds (Oiko Credit etc)
and have negotiated lines of credit with banks while inter MFI lending is largely practiced.

24

concern over MFI networks portfolio quality.


79.
The MFIs made an overall reasonable profits in 2010 (US$ 1.2 million up from a loss
of US$ 1.3 million in 2009) and had a positive average return on asset ROA of 3.1 percent
with a good return on equity of 17 percent. Even though proper risk management policies
are in effect (including rigorous recovery campaigns and curtailed loan underwriting), the
good move already made towards achieving financial sustainability could be undermined if
the NPL rate is not drastically reduced in the short run. Madagascar MFIs are not alone in
this challenge of rising portfolio risk. CGAP (Microfinance MIX data)22 reported a concern
over portfolio quality of banks and non bank institutions in SSA which had negative ROA
ratios (-2.4 percent and -0.9 percent respectively for banks/non bank NGOs in 2010.
80.
The unpredictable trend on sustainability indices for some of the individual MFI
networks (see Annex 2 and Sections 3.3 & 3.4 of this report for details), does reinforce the
persmism regarding sustained positive sustainability indices for some of the MFI networks
should another external shock occur. The trickle down effects of the political and financial
crisis are yet to fully emerge which could undermine the achieved levels of financial
sustainability. A realistic assessment of the trickle down effects of the crisis (political and
financial crisis) on the performance of microfinance institutions would be best done two
years after the shock (towards the end of 2011).
81.
The MFI Networks are fragile and susceptible to political risk due to the noticeable
government interference in their operations. The usury law is still effective (legally) even
though it is no longer practiced. Although financial institutions are allowed by the
Government and indeed they charge competitive interest rates, this can only be legally
binding with a duly signed law.
82.
The PAD did not provide a benchmark upon which the social impact on beneficiaries
would be assessed. Several studies 23 including the impact study (2005) and ICR focused
group discussions indicate improved standards of living of the low-income population.
However, these studies were not objectively designed to exclusively measure income
changes and comparison of parities between project beneficiaries and non project peers in
similar environments. Post implementation studies targeting beneficiaries of supported MFIs
with proper benchmarking methodologies will be needed to objectively confirm this success
and develop means of attrition to the project.
The intermediate outcomes of the project
83.
The first intermediate outcome of the project was to improve the microfinance
policy, legal and regulatory framework. This was to be achieved through preparation of laws,
regulations and improvements in business laws applicable to microfinance, notably on
collateral, and the establishment of a supervision mechanism for MFIs. An effective legal

22

CGAP (Microfinance MIX data) report: Sub-Saharan Africa Microfinance Analysis and Benchmarking Report
May 2011

23

Building Inclusive Financial Sectors in Africa (January 2009); Madagascar Enterprise Survey (2009); The Impact of Microfinance on small
Informal Enterprises in Madagascar by Flore Gubert et al (May 2011)

25

and regulatory framework and supervisory mechanism for microfinance institutions exist
thanks to the law (2005-016) that offers regulatory best practices. The Banking Commission
(CSBF) undertakes on-site as well as off-site supervisions of all licensed MFIs. When Law
2005-016 was introduced in 2005, only eleven MFIs approved by the CSBF were in
compliance.24 Today, all registered MFIs comply mainly due to strict disciplinary measures
and the imposition of fines.
84.
The Banking law of 1996 was improved to accommodate specific needs of the
microfinance sector. A new law (law #2005-016) was enacted giving the Central Bank (CB)
a supervisory role for MFIs. Several legal instruments were prepared and passed which
improved operations of microfinance institutions including: three circulars describing the
minimum capital requirements and periodic reporting of MFIs as well as the registration
process for the different levels of MFIs (level 1- 3). A total of 11 regulations, two decrees,
eight instructions and legislation were issued all based on international best practices.
Decree #2007-012 was passed describing the dissolution of MFIs including the judicial
process and the rights of creditors etc. The Central Bank is capable to enforce application of
these regulations and MFIs are in full compliance.
85.
The law defining procedures for collateral registration and seizure (in case of loan
default) was adopted and has improved the business environment for MFIs that have been
able to successfully fight legal cases in court to seize collateral for delinquent loans as
reported during the ICR meetings by the MFI branch management. This law has effectively
helped the implementation of recovery policies instituted by MFIs geared to curb the NPL
risk the result was a reduction by 4 percent in just one year (14 percent in 2009 to 10
percent in 2010).
86.
The passing of a law giving the Central Bank supervisory role for MFIs strengthened
the credibility of MFIs in the financial sector leading to noticeable increasing partnerships
between private lenders (Oikocredit was among the few Investment Funds mentioned to have
provided lines of credit to some of the supported MFIs). Inter MFI network lending (a total
of US$1,274,497 worth of inter MFI lending outstanding loans between 2008 December
2010 was reported) is significant though at a low pace in 2010.
87.
Additional supervision conducted by the Federation of MFI networks is a good
complement to the supervision of the Central Bank and has proved to be very efficient in
enforcing discipline among the affiliates of the MFI networks. A holistic approach to address
financial access gaps through a combination of policy reforms, institutional building and
MFI development was instrumental in instilling discipline and soundness required for the
embryonic but fast growing microfinance sector.
88.
A law to formally abolish usury was prepared with support from the project but is yet
to be submitted for approval by the Parliament due to the transitional nature of the
government. Although financial institutions including microfinance are allowed to charge
competitive rates (in fact they charge competitive rates), this can only be formalized with

24

2008 Annual Report inclusive finance program MAG 00609-31. January 2009.

26

official passing of the law.


89.
The second Intermediate Outcome of the project was to strengthen the
microfinance capacity to better build an inclusive financial sector. This was to be achieved
through studies and training of microfinance professionals and members. The capacity of
microfinance staff and Board members was significantly improved as demonstrated by
improved quality in portfolio risk management and a positive move towards sustainability of
MFI networks. With additional financing, the curriculum in microfinance was developed and
tested and eventually institutionalized through the microfinance professional association.
Post training evaluations and interviews in the field confirmed that capacity of the Board and
staff was significantly improved due to learning and specialized courses offered by CGAP
with support from the project. Targeted courses were offered to MFIs by Resident Advisors
(including DID Canada, WOCCU, CIDR France etc) directly impacting Board members and
staff of beneficiary MFIs. The regulator also offered tailored courses to Board members and
practitioners on the new legal/regulatory framework. More than 100 Board members and
practitioners benefited from these tailored in-house courses offered by their respective
Resident Advisors and the regulator.
90.
More than 20 structured courses 25 for groups were offered to more than 300
microfinance practitioners in Madagascar. Additional training was offered through study
tours in Africa and Europe involving internships for regulators (about four staff of the
Central Bank) in other supervisory institutions (mainly in France and in BCEAO the
Central Bank of West Africa Monetary Union). Unlike in 1999 when the project was started,
local microfinance consultants are easily available and some training courses that were
earlier offered only outside Madagascar are now offered locally by training institutions that
benefited from training of trainer (TOT) programs offered in collaboration with CGAP. The
microfinance associations (APIMF) through which most of the courses were institutionalized
was being transformed in 2010 to increase its mandate to cover all institutions offering
microfinance products (including banks offering microfinance products).
3.3

Efficiency

91.
The efficiency of project investments is rated Satisfactory. At appraisal, benefits
from project investments were to be seen in the operation of healthy MFIs, widespread
access to financial services by low-income people, important volumes of savings and credit,
decrease in subsidies, and confidence in the institutions that serve their needs. Based on
this definition the microfinance project is judged to be efficient.
92.
The same aggregate method used in section 3.2 is applied below to arrive at an
objective rating of projects efficiency. In addition, the OSS which was also included in the
previous analysis has been used as a primary indicator in measuring projects efficiency (see
table below). The OSS analysis is complemented by other measures of efficiency which are
not aggregated as there was no benchmarks established in the PAD or there was no
25

The curriculum cover a range of topics for MFI staff and Board Members in the areas of: governance, credit risk
management, internal control and supervision, loan underwriting, new products development, marketing
management, business planning, accounting and financial management.

27

substantiated data to facilitate objective aggregation for the two implementation periods.
Additional analysis using other measures of efficiency applied in the microfinance industry
are also provided in this section (see Annex 2 and Annex 3) to complement the efficiency
measure rating for this project.
Table 11. Rating of Project Efficiency (Pre-Additional Financing and Additional financing
eras)

Baseline
1999

Target
(April
PAD
1999)

Achievement
2006*

Rating of
Project
Efficiency

Lac Alaotra

60%

142%

HS

OSS
Additional Financing Era (2007
2010)
Targets
Rating of
(Project
AchieveEfficiency
Paper
ments
(based on
March
2007***
targets)
2007)**
175%
99.14%
MU

OTIV
Antananarivo
Diana
(Antsiranana)

42%

140%

HS

148%

98.91%

MU

19%

156%

HS

174%

157.59%

HS

Toamasina*

n/a

95%***

120%

97.16%

MU

Fianarantsoa*

22%

79%***

MS

132%

122.45%

HS

MFI Networks

OSS
Pre Additional Financing Era 1999 2006)

Comments

Almost at 100
breakeven point
Almost at 100
breakeven point
Below project
paper targets but
has achieved
breakeven points
for OSS and
FSS.
Almost at 100
breakeven point
Below project
paper targets but
has achieved
breakeven points
for OSS and
FSS.
Satisfactory

Overall Rating
S
S
of Project
Efficiency
Notes:
*In the absence of PAD target for Toamasina (1999) the S rating was arrived based on baseline value of zero and comparison
with performance of peers who were above breakeven point. Fianarantsoa is rated MS for the same reasons.
**Project paper for additional financing had set ambitious OSS targets which were based on an excellent performance of the
previous phase (prior to the political and financial crisis).
***Source: Project data

28

December 2006
Disbursed Against
Original APL in 2006
(phase 1 5 years)
1
2
3

Efficiency
Rating Value
Weight (% disbursed
before/after
restructuring)

4
5

Weighted value (2 x 3)
Final rating on
Efficiency (rounded)

Satisfactory
5
US$15 million (fully
disbursed) + US$4.3
million (additional
financing disbursed at
closing) = US$19.3
million
US$15 million/19.3
million * 100 = 0.78
5 * 0.78 = 3.9

December 2010
Disbursed Against
Additional Financing
(restructuring era 2007
2010)
Satisfactory
5
US$5 million * 86%
(disbursed at closing) = 4.3
million + UD$15 million
(original) = 19.3 million

December 2010
Overall Outcome Rating
Satisfactory
Total project budget =
US$20 million
Total disbursed at closing
= US$19.3 million

US$4.3 million / US$19.3


million * 100 = 0.22
5 * 0.22 = 1.1

5
Satisfactory

See additional analysis on MF sector efficiency/efficacy measures as they relate to this project below.

93.
IDA financing of US$20 million (APL and Additional financing) helped to narrow the
access gap and impacted a large number of low income population (391531) with financial
services which they would not otherwise have obtained. The project helped mobilize high
level of local savings (US$23 million) and provided thousands of micro loans (Outstanding
loans US$23 million) to low income population. Loan products were diverse and
competitively priced (average interest rate of 15 percent) as demonstrated by positive returns
on assets (average ROA 3.1 percent 26 and adjusted for subsidies AROA of 2.36 percent)
which is an objective measure of returns from the outstanding loan portfolio. The IDA
financing supported innovations as new products including pension payment system were
developed and mainstreamed in the microfinance system. Membership continued to grow on
average 21 percent per year even during the crisis which demonstrates customers loyalty to
the MFI networks. The sustained membership growth created the required scale for
breakeven and efficiency.
94.
In addition, the PAD (Annex 3) had developed a subsidy dependence index (SDI)
model to be used to assess and quantify subsidies given to the SLA network. SDI was meant
to measure the increase in the average interest on-lending rate required to compensate a MFI
for the elimination of subsidies (Subsidies given to MFIs under the project included
investment in civil works - construction of office buildings, office equipment and training,
recurrent costs and technical assistance) in a given year while keeping its return on equity
(ROE) equal to the approximate no concessional borrowing cost. The project had a ROE of
17 percent demonstrating MFIs ability to generate returns using their own investments. At
project restructuring in 2007, SDI model was replaced by an operational self sufficiency ratio
(OSS) considered to be in line with best practices in assessing performance of microfinance
institutions. Later FSS was introduced as another measure of efficiency and MFIs achieved

26

Despite the reduced loan underwriting due to operational risk, the returns were positive and above that achieved
by peer MFIs in SSA (average negative 0.9) during the same period of post financial crisis.

29

an average 103 percent which is above the breakeven point (see details in Annex 2).
95.
The best practice in evaluating microfinance institutions which is endorsed by CGAP
considers OSS & FSS as the best measure of efficiency in microfinance27. An operational
self sufficiency ratio of 100 percent or more would be proof that subsidies had been used
efficiently to allow MFIs to cover their operating costs with revenues generated from their
lending activities. The 100 percent FSS (financial self sufficiency) would be proof that the
MFIs are able to cover operating costs, plus cost of funds (funds from the private sources)
and can withstand inflationary effects (volatile interest rates) at the sector level. The PAD
also provided a definition of cost-effectiveness of the project. For example, activities
financed by MFIs were expected to be economically and financially viable to enable
repayment of loans on time with effective interest rates. The project had a PAR or NPL of 10
percent at closing which means that roughly a 90 percent repayment rate against the PAD
target of 95 percent was achieved. Through the project-supported MFIs the low-income
population borrowed at competitive market rates (average 15 percent per annum).
Table 12. MFI Networks Profitability/Sustainability Index (December 31, 2010)
Profit or
(loss)
(in
000Ariary)1
166,158
130,566
523,860
1,408,362

Antananarivo
Toamasina
Lac Aloatra
Diana
(Antsiranana)
Fianarantsoa

0,62%
0,79%
4.37%
11,4%

Adjusted
Return on
Assets
(ARoA)
- 0,26%
0,79%
4.37%
8,7%

1,69%

0,59%

245,771

All five MFI


networks

3.01%

2.36%

2,474,717

Return on
Assets (RoA)

Operational self
sufficiency(OSS)

Financial
Self
Sufficiency

99%
97.16%
99.14%
157.59%

94.41%
97,16%
99.14%
122%

122.45%

115%

106%

103%

Source: Project data & Audit Report (2010): Note: 1 US$ = 2000 MGA (Madagascar Ariary)

96.
The efficiency indicators above for all MFI networks prove that the networks are
economically viable business entities with the ability to generate positive returns (ROE &
ROA) as confirmed by the 3.1 percent average return on assets 28 , 106 percent average
operational self sufficiency and 103 percent financial self sufficiency rates at project closing.
This is impressive considering that loan underwriting was curtailed during the political and
financial crisis, which generated some loss of interest income.
97.
The sustained level of savings which were priced below (average 5 percent) the
lending rate (15 percent) helped MFIs make profits albeit the high NPL due a reasonable
spread of 10 percent. This underscores the high level of efficiency on portfolio planning,
new products development and innovation (including pension funds paymentcommission
fees from pension funds transfers) by the MFI networks.
27

Refer to the CGAP guidelines manual on evaluating performance of microfinance institutions.


CGAP/MIX data reported poor average Return on Assets (of below 1 percent) for financial institutions in SSA
including MFIs in 2010 and that ratio was not adjusted for subsidy as is the case in the project.

28

30

98.
A quick cost analysis revealed interesting scenario for this project indicating that the
self managed decentralized microfinance systems model adopted by the project was the most
efficient approach to respond to the access gap in the country. The average operating cost
per beneficiary29 was US$25 in the last three years of project implementation which is far
below sector standards for microfinance institutions 30 in SSA. Towards the end of the
project (2009 -2010) most of the operating costs were borne by the MFIs (own equity) as
IDAs subsidy decreased.
Table 13. Operating Efficiency Trend of the Supported MFIs
2008
264,400
Number of members
Operating Costs (US$) 51324
Cost per member
26

2009

2010

332,840

391,538

56959
28

43251
22

99.
The projects efficiency and efficacy was also measured using gross national income
(GNI) against average outstanding loans and savings at closing in December 2010 in order to
assess the efficacy of the project - how deeply the project targeted the poor. The GNI for
Madagascar in 2010 was about US$232 and was used as a denominator. The balance of
average loans as percentage of per capita GNI rate of 206 percent was achieved (against
average outstanding loans MAG 954000 US$477). The balance of average savings as
percentage of per capita GNI was 33 percent (average savings balance of MAG 147000
US$73). The CGAP/Microfinance Information Exchange (MIX) classifies lenders as being
MFIs if their average outstanding loan balance is not above 250 percent of per capita GNI of
the country. The project scores very highly on efficacy through poverty targeting
particularly on savings which yielded significant impact (wealth creation through mobilized
savings and by inculcating the savings culture) for the low income segments in rural areas as
depicted by the achieved GNI comparators.
100. The self-management aspect of these cooperative types of MFI networks contributed
to the efficiency because operating costs were low due to the voluntary work of the Board
members. Focus group meetings during the ICR mission also indicated that an average of
two jobs per loan was created with higher than five seasonal jobs per loan in rice farming. A
structured employment survey could shed light on employment impact and other socioeconomic spending (education, health, assets acquisition) by borrowers.
101. Based on the above analysis, the PAD definition, the performance of Peer institutions
in SSA and the international best practice norms on how to assess microfinance
program/projects the project was efficient and efficacy against all odds, hence, the overall
efficiency rating of Satisfactory.

29

Costs are adjusted for subsidy and inflationary effects.


CGAP and Microfinance Gateway studies estimate average cost per microfinance borrower in SSA to be above US$100 per client especially
for the rural enclave environments like the rural Madagascar.
30

31

3.4

Justification of Overall Outcome Rating

102.

The overall outcome rating of the project is Moderately Satisfactory.

103. Although the project PDO was not revised the weighted method has been used to
arrive at an objective overall rating of MS. The project was complex with a lengthy
implementation period of eleven years including two restructuring and additional financing
in 2007. At restructuring stage in 2007 most of the phase 1 APL targets were already
achieved (see table below) and the project performance was rated Highly Satisfactory after
an early restructuring in 2002 due to the first political crisis. However under the additional
financing era (2007 2010) many problems were encountered as explained in prior sections
and the project was rated Moderately Satisfactory at closing in December 2010.
104. The overall weighted rating method has therefore been adopted in order to objectively
arrive at a balanced overall rating for the entire project life without undermining the levels of
effort and achievements under each period. The weighted outcomes from Sections 3.2 and
3.3 are included in this overall weight rating. The US$15 million allocated under the first
phase of the 15 years APL was fully disbursed before restructuring, and 86 percent of the
additional financing of US$5 million was disbursed at closing in December 2010 (94 percent
when disbursement was stopped in April 2011).
Table 14. Summary of Overall Outcome Ratings of PDOs

Outcome

Highly Satisfactory

December 2010
Disbursed Against
Additional Financing
(restructuring era 2007
2010)
Moderately Satisfactory

Efficiency

Satisfactory

Satisfactory

December 2006
Disbursed Against
Original APL in 2006
(phase 1 5 years)
1

December 2010
Overall
Outcome Rating
Moderately
Satisfactory
Satisfactory
Combined (MS)

2
3

4
5

Rating Value
Weight (%
disbursed
before/after
restructuring)

Weighted value (2
x 3)
Final rating
(rounded)

5
US$15 million (fully
disbursed) + US$ 4.3
million (additional
financing disbursed at
closing) = US$19.3
million
US$15 million /19.3
million * 100 = 0.78

4
US$5 million * 86%
(disbursed at closing) = 4.3
million + US$$15 million
(original) = 19.3 million
US$4.3 million /US$19.3
million * 100 = 0.22

Total disbursed
at closing =
US$19.3 million

5 * 0.78 = 3.9

4 * 0.22 = 0.88

4.78

Total project
budget = US$20
million

Moderately
Satisfactory

32

105. Though the analysis could conceivably suggest an overall Satisfactory rating, taking a
more conservative approach, the overall outcome rating for the project is considered to be
Moderately Satisfactory.
106. The project was and continues to be highly relevant to the country priorities. The
decentralized financial systems model adopted to increase access to finance proved to be
efficient as explained before. The project was able to greatly expand access to finance to the
low-income population especially in rural areas. Extensive networks of microfinance
institutions exist in the country offering diversified financial services (savings, credit and
pension fund payments) in the most excluded parts of the rural communities. There were
only 59 MFIs offering precarious financial services in 1999 when the program started. At
closing the number had more than quintupled to 236 sustainable MFIs with membership
growing at average 21 percent per annum (albeit at a slower pace in the last two years of
implementation for reasons outlined earlier). More than 85 percent of the MFI branches are
in the rural areas and respond to the tailored needs of low-income households.
Table 15. Outreach Impact on Access to Finance
Indicator
1999
2000
2001
Number of
3 (59 MFI
3 (59)
5
MFI Networks
Networks)
(SLAs or MFI
Branches)
Number of
22818
41388
58328
Members
Number of
59
85
105
SLA (MFI
Branches0
Savings (MGA
1675
4146
6581
000)
Outstanding
1103
2733
2990
Loan (MGA
000)
Exchange rate: 1 US$ = MAG2000
Source: Project reports

2002
5

2003
5

2004
5

2005
5

2007
188

2008
225

2009
223

2010
236

129588

2006
5 (157 PAD target
was 102
SLAs)
171900

73122

98695

110636

216746

264, 400

264, 400

264, 400

126

130

123

123

157

188

225

233

236

7417

12400

15800

18581

24 322

32 177

42 933

50 530

57 403

2970

6730

7060

9500

16000

2 3800

38 201

37 3879

45 819

107. Notwithstanding the impressive outcomes of the project, the supported MFIs are
fragile due to the above sector norms (five percent) of the reported NPL of 10 percent.
Government interference in MFI operations raise concerns over long term sustainability of
the MFIs. The usury law though prepared (and is not practiced by financial institutions) is
yet to become a law. The government is still on transitional mode after the political crisis of
2009.
3.5

Overarching Themes, Other Outcomes and Impacts

3.5.1

Poverty Impacts, Gender Aspects, and Social Development

108. A study conducted in 2005 to assess impact of the project on beneficiaries in the four
provinces covered by the program concluded that access to finance had improved the lives of
the low-income population in rural areas. Up to 85 percent of all MFIs were rural based, and
a majority of the beneficiary low-income population had moved from subsistence to
commercial rice cultivation. Land size holding had increased threefold and land renting
practice had also increased. Up to 68 percent of the interviewees (about 650 beneficiaries in
33

the four provinces) met the eligibility criteria of social targeting defined in the PAD.
Agriculture and commerce were the main sources of income (34 percent and 28 percent
respectively). The most impressive impact was on financial deepening with 57 percent of
beneficiaries reporting that they had no other source of finance except from the project
supported MFIs. Warehouse receipt credit was introduced in 2004, which provided cash for
other social spending instead of selling the produce at low prices during the harvest.
Table 16. MFI Penetration Rate
Province
Fianarantsoa
Fianarantsoa
Fianarantsoa
Tana
Tana
Toamasina
Toamasina
Toamasina
Toamasina
Lac Alaotra
Lac Alaotra

MFI Branch
Mahasoabe
A/sy Itenina
Mananjary
Ambohitrarivo
Ankazondandy
Rantabe
Ampasimbe
Soliraf
Mahanoro
Ambatondrazaka
Ambohidratrimo

Penetration
Rate
7.90%
5.90%
7.10%
14.80%
15.00%
15.20%
9.40%
12.00%
12.60%
10%
13%

Source: Impact Study - AGEPMF 2005)

109. Interviews with beneficiaries in October 2010 revealed that proximity to a secure
savings system was important to them especially for women and that contributed to the high
volumes of the savings mobilized by MFIs. The training offered to women solidarity groups
and to MFIs Board members in topics ranging from: member managed institutions, MFIs
governance, financial management, and credit approval/risk management, etc., positively
impacted the beneficiaries and played a big role in MFIs ability to contain risk during the
crisis and remain sustainable.
3.5.2

Institutional Change/Strengthening

110. The project was instrumental in fostering the development of an appropriate


legal/regulatory and supervisory institutional framework for the microfinance industry which
is cornerstone for building a healthy microfinance sector. A now fully fledged Microfinance
Supervision Unit exists at the Central Bank (CSBF) providing the critical oversight required
for the rapidly growing sector. The unit has competent staff and was instrumental in drafting
microfinance laws and regulations that conform to international guidelines as well as
undertaking off and on-site supervisions of MFIs to help keep the sector sound and viable.
An effective supervision of network members by their apex organization is institutionalized
at the MFI networks level to complement regulators supervisory role.
111. The project addressed the issue of information asymmetry in the financial sector
through support to create a credit bureau for MFIs, which is now linked to that of
34

commercial banks for better risk management in the entire financial sector.
112. The tailored Technical Assistance offered to MFIs by internationally renowned
institutions (e.g. DID Canada, IRAM & CIDR France) did strengthen MFIs institutional
capacity to manage risk and growth in the long run as evidenced by positive sustainability
indices reported.
113. The training curriculum developed with help from CGAP for microfinance
practitioners have been institutionalized at the apex microfinance association (APIMF).
Regular courses were offered to practitioners with a fee. MFIs have also institutionalized the
materials and tools developed for them as part of technical assistance. Board members
training curriculum is standardized for all the MFI networks which facilitates learning and
human resource sharing among MFI networks.
3.5.3

Other Unintended Outcomes and Impacts (positive or negative)

114. The recent partnership of MFIs with the social security administration (CNAPS) to
provide retiree pensions is an unintended development. This private public partnership
facilitates access to retirees of their only source of income for most of them, and saves them
from travelling long distances to get their pensions. This partnership has the potential to help
MFIs diversify their services and broaden their outreach to a wider segment of the unbanked.
A cautionary note about this partnership is the necessity to limit state interference in the
operations of private MFIs at the risk of undermining their sustainability. Commissions paid
to MFIs that do not cover their costs to distribute pension funds as they are dictated by the
government and not based on profitability of the product. Also, the state should not be the
one to pay the membership fees of less than US$1 for retirees. Voluntary membership fees
from the retirees is the best guarantee for these MFIs which are financial cooperative to grow
and retain these members in the long run and offer them more services.
115. Rapid growth and good performance of the microfinance sector was not expected in
such a short time. In 2005 when IMF and The World Bank conducted the FSAP, it was clear
that the microfinance sector had matured enough to be part of the larger financial sector
program. PASEF was designed to scale up lessons from this program in the optic of financial
inclusion where all financial institutions would participate in weaving the quilt to narrow the
financial access gap.
3.6

Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

116.

Not applicable.

4.

Assessment of Risk to Development Outcome

117. Risk to development outcome is Moderate. Most MFI networks are on average
operational and financially sustainable and have demonstrated that they can run their
business without donor subsidies. Overall, the legal framework in place is facilitative and
allows for healthy competition, which has reduced cost of lending (from above 80 percent to
an average of 15 percent per annum) to the low-income population. The flexibility of the
Government to allow the application of market interest rates (before passing of the new usury
35

law) has contributed to this positive trend. MFIs have shown their resilience through the
financial and several political crises. The achievements of the project should continue to be
sustained through support to be provided under the PASEF project.
118. However, there are concerns that delays in getting PASEF project operational would
undermine the momentum gained by the MFI networks. MFIs are currently suffering from
operational risk that must be contained in the short-run to sustain the achieved levels of
operational sustainability. In the medium- to longterm, it is doubtful how these MFIs will
thrive and sustain their operations amidst unforeseeable external shocks and the notable
government interference in their operations. This interference especially regarding the
pricing of pension fees channeled through the MFIs raised concerns over independence of the
MFI networks and their long term sustainability. In one Province, it was reported that the
government is forcing MFIs to adhere to networks out of political motives. Although the
concerned MFIs have succeeded in contending this move, it is likely that future interference
will undermine the effort made towards achieving development outcome.
5.

Assessment of Bank and Borrower Performance

5.1

Bank Performance

5.1.1

Bank Performance in Ensuring Quality at Entry

119. Quality at entry is rated Satisfactory. Possible risks were identified at the beginning
and practical mitigation measures were clearly spelt out. For example, the issue of poor
capacity which was articulated early on did affect program implementation and the
milestones on completion dates. The project was built upon a solid foundation laid by the
reform program (RFTAP Cr. 2459-MAG) that preceded microfinance project. This facilitated
smooth take off and implementation of the microfinance project while capitalizing on lessons
learned. The project targeted the most vulnerable segment in the market with tailored
products and through adapted channels (MFIs Networks) owned and managed by members.
This model proved pertinent especially during several political crises as members took
charge to mitigate operational risk and preserve their investments.31
120. The quality could have been improved by defining units of measure for social
indicators related to increased income and productivity of micro borrowers. The Subsidy
Dependence Index was provided in the PAD as a model to measure farm productivity.
However, some of the useful aspects of the model could have been incorporated in the M&E
framework to facilitate objective data collection and reporting on productivity during
implementation.
5.1.2

Quality of Bank Supervision

121. Quality of supervision is rated moderately satisfactory. Supervision missions were


undertaken at least twice a year during project life except at time of political turmoil when

31

During the political crisis of 2009 most commercial banks closed down but MFIs continued to operate albeit
reduced lending operations with relatively minimal losses.

36

Bank missions were suspended. During 11 years of project implementation, there were only
three task team leaders (TTL), which is a relatively low turnover of Bank team leaders.
Moreover, the TTL at project closing provided continuity by her presence as a team member
at project negotiations. The task team produced comprehensive aide memoires and identified
issues for management decisions including the need to restructure the project in 2002 after
the political crisis and in 2007 after FSAP study. After agreeing to fold the subsequent
phases of the APL into another project, the team sought additional financing to bridge the
gap between the end of the microfinance project and the beginning of PASEF. Financial
management was able to identify financial management weaknesses that lead to refund of
ineligible sum to the World Bank by the project coordinator. Issues were promptly brought
to Managements attention and solutions sought.
122. The task team remained pragmatic and flexible by responding positively to MFIs
request to create five networks instead of the four originally planned and Governments
request to eliminate counterpart funding. However, Bank Management did not always
respond as swiftly as desired especially towards the end of the project and this contributed to
the delays getting PASEF project implementation underway or otherwise suspended.
123. Supervision teams could have revised the operational self sufficiency targets set in the
restructuring paper to reflect the operating environment of the MFIs in 2009 after the
political/financial crisis. Also the supervision teams could have instituted a progressive
approach to measure social impact after the original design instead of relying on periodic
impact studies.
5.1.3

Justification of Rating for Overall Bank Performance

124. The overall Bank performance is rated moderately satisfactory. Supervision


missions, financial management & midterm reviews were implemented according to plans
and timely recommendations provided to project stakeholders. Government requests were
given due attention including the request to provide additional financing to the project to fill
the gap until the effectiveness of the PASEF Project.
125. The decision to replace the APL with the PASEF and a new funding instrument (SIL)
for consolidation purposes was in part responsible for the prolonged project implementation
period of 11 years (1999-2010). Restructuring had to be done in 2007 to reflect these changes
and add a bridge finance of US$5 million to the project. The political crises triggered OP
7.30 measures by the World Bank and disbursements were put on hold and also created some
delays in implementation.
126. A limited waiver to OP 7.30 was granted (to few projects including the microfinance
project) during 2010, and the project was extended for six months to December 2010 to
facilitate smooth closure. However, the World Bank was unable to swiftly enforce
recommendations of various Aide Memoires (brought to their attention prior and after the
crisis) including those of the last ISR (December 2010) mission which called for immediate
suspension of the microfinance project or immediate replacement of the project coordinator.
Although negotiations with the Government have led to an agreement to replace the project
coordinator (who will oversee implementation of PASEF), the World Bank did not send a
37

timely and sounding message to the government and this contributed to the un orderly
closing of the microfinance project and the delayed take off of the successor project (PASEF)
through which the microfinance project is to be scaled up.
5.1.4

Government Performance

127. Government performance is rated moderately unsatisfactory. The Government was


committed to the project and showed effective participation in project implementation
between 1999 and 2002 when the first political crisis occurred. There were regular yearly
meetings of the Management Board of the project Coordinating Agency (AGEPMF). The
Board who played the role of a steering committee was made up of the main stakeholders
including several State ministries (finance, justice and decentralization) as well as the
Central Bank and representatives of the MFIs. There has also been goodwill by the
Government to promote microfinance in the country as evidenced by important legal and
regulatory reforms in addition to the creation of a supervision unit at the Central Bank. Also,
the laws intended to improve the business climate (usury) were prepared although they have
not been submitted to the parliament for adoption due to the transitional nature of the current
government.
128. On the other hand, the notable interference of the Government on MFIs operation is
an issue of concern as it will affect their long term sustainability. Also the Government
decision32 (supported by the World Bank) to appoint a public servant as a project coordinator
in 2006 did not serve the project well. The selection process for this appointee was limited to
government employees only and was not very competitive. The new coordinator showed
very quickly that he did not have the competencies required to manage the microfinance
project. Soon after he came on board, the project experienced considerable slow down in
implementation and disbursement rates went down. Also, many recommendations made by
IDAs supervision missions as well as auditors recommendations were not implemented nor
followed through by the Government.
129. The aide memoires (2009 and November 2010) and the ISR report (December 31st,
2010) highlighted governance issues and low staff morale due to poor leadership at
AGEPMF. The final audit reports (December 2010) reiterated the issue of mismanagement
of project equipment, which was reported in the previous audit. The previous concern
regarding undocumented transfer of project equipments to the Ministry of Finance was raised
again in end of year audits (December 2010). The previous audit had recommended that a
full-time internal auditor be recruited for the project and this was never implemented.
130. The project coordinator (government employee) was alleged to be conducting
activities that compromise integrity of the World Bank. For example he was directly
involved in the management of a government run Pension Fund (CNAPs) program which was
parallel implemented with the microfinance project. This exposed IDA to a certain degree of
reputational risk. The pension fund program was implemented through some MFIs who were
not partners of the project. MFIs were not given the option to determine commissions rate

32

This was supported by the World Bank as stipulated in the Project Paper for Additional Financing in 2007 (Report #38892)

38

that would cover operational costs for this product. This interference could potentially
undermine the efforts of these MFIs to fully achieve financial sustainability. Despite repeated
recommendations by the World Bank supervision missions, this practice was not
discontinued.
131. The transitional Government which took over after the coup of 2009 has not been an
effective partner. Recommendations made by IDAs supervision missions that were further
reiterated in the last aide memoire to allow smooth closing of the project and resolve
governance issues at the highest level of the project coordination unit have not been acted
upon.
132. As a consequence, the governments completion report of the project was not
prepared as requested. A final progress report from the project management was submitted
but that does not substitute for the required government report. This poor collaboration from
the government during the last three years of the project had a big influence on the tardy pace
of implementation of the successor program (PASEF which was launched in 2008 but has not
begun implementation).
133. These issues continue to be discussed with the Malagasy authorities for an effective
resolution and fortunately, the disruptions brought by the new coordinator did not undermine
the good achievements already made after seven years of project implementation especially
the performance of project supported MFIs. In the end, the disbursement rate for additional
financing was 86 percent at closing (94 percent in April 2011). This was made possible
when the MFIs were reimbursed for the expenses they made with their own funds during the
crisis period. The extension to spend (to April 30, 2011) was given to facilitate smooth
closure.
5.1.5

Performance of Implementing Agency

134. The rating is moderately unsatisfactory mainly due to governance and leadership
issues at the project implementation unit during the closing years. Project results were
achieved successfully thanks to the effective implementation by the Central Bank (policy
component) and MFI Networks (access component) as mentioned earlier.
135. Implementation of the microfinance project was coordinated by an agency specifically
created (AGEPMF) to assume that role. Day-to-day management of project activities was
delegated to the AGEPMF Secretariat with the Executive Secretary assuming the role of
project coordinator. AGEPMF was also in charge of recruiting technical assistant providers
(DID and IRAM) to capacity building of MFI networks. The Central Bank of Madagascar
(CSBF) was the implementing agency for the preparation of prudential regulations and
supervision of MFIs under the Legal/Regulatory component. AGEPMF coordinated the work
of the Ministries of Finance and of Justice on the Legal and Regulatory Component.
136. For the first eight years of project implementation, the team at the executive
secretariat of AGEPMF was made up of a team of private sector recruited staff. Coordination
activities were undertaken successfully by three different coordinators. Annual work
programs, budgets, and other fiduciary functions proceeded in a satisfactorily manner.
39

Leadership problems at AGEPMF during the last three years of the project affected
disbursement and procurement which slowed down considerably. As explained in the
preceding section, the misappropriations of funds by the project coordinator led to a refund
of ineligible expenses to IDA. Six months before the project original closing date of the
additional financing (June 30, 2009), only about half of the additional funds had been
disbursed.
137. Fortunately, most of the key technical assistance activities planned for MFIs had
taken place, and MFIs were able to survive on their own funds during the crisis period. Due
to delays in implementing the procurement plan, some activities could not be completed
(equipment purchase, technical audits and rating exercise for MFIs networks). The
Government Implementation Completion and Results (ICR) report was not completed. The
final audit reports (December 2010) highlighted improper transfer of project assets to the
government. This is not quantified in the audit reports.
138.
Recruitment of external auditors for the project and MFIs was not done on time and
audit reports were not available before the end of June prompting an extension of ICR
submission date (audit reports were received after mid July 2011). These audits were
necessary to confirm financial data from MFIs and assert whether previous audit
recommendations had been followed by AGEPMF.
5.1.6

Justification of Rating for Overall Borrower Performance

139. Overall Borrower Performance is rated Moderately Unsatisfactory. The government


contributed to the design and implementation of a program that impacted the poor in
Madagascar. Government provided counterpart funding in the first few years of program
implementation and provided the building to house the project coordination staff. MFIs
benefited from Governments reforms that laid the grounds for a healthier microfinance
industry in Madagascar. AGEPMF run a smooth operation for many years, during which the
bulk of the technical assistance to MFIs was provided and made them fairly resilient. The
Central Banks performance was satisfactory. With strong leadership and highly competent
staff, CSBF adapted to the evolving situation in the microfinance industry and issued
regulations that conform to international standards.
140. While the Government of Madagascar executed its mandate well for many years, the
current transitional Government has shown less good will and the consequences of this lack
of effective partnership heighten concerns over long term sustainability of microfinance
project. Governments interference regarding pension funds payments channeled through
MFIs as well as political involvement in the decision of retail MFIs to affiliate to a particular
Unions or apex organization are worrying developments. If allowed to continue, these
actions can pose a threat to the operation of all MFIs in the country. Although discussions
are under way, the Government did not act swiftly to implement the recommendations of the
last Aide Memoire considered necessary to provide a solid foundation for the PASEF
program. Restructuring of PASEF program would need to validate the renewed government
commitment to effective partnership.

40

6.

Lessons Learned

141.

Several lessons emerged from this assessment of the microfinance project:

142. Long term approach to capacity building: The long term approach (15-year three
phase APL) which ended being one prolonged phase was an excellent design feature that
contributed to effective achievement of project PDOs. Eleven years of implementing the
microfinance project proved the importance of allocating enough time for programs that
combine reforms and institutional building in order to achieve results. The program ended
with far reaching impact to the poor especially on the wealth creation (savings mobilization)
and loans as well as institutions able to provide services in a future in a sustainable manner.
143. Gender dimension: Targeted interventions can contribute to inclusive financial
systems by increasing participation and welfare of vulnerable groups as observed in this
project. Solidarity groups for women were instrumental in helping women members to
mobilize savings for wealth creation. Outstanding loans to women increased over time to
more than 50 percent of total loans mainly due to intensive training and mentorship provided
through special programs. The model did crowd in other donors including the United Nations
Capital Development Fund (UNCDF) who supported MFIs to promote gender finance.
144. Governance: Good governance for member owned institutions such as the financial
cooperative has been a key to achieving sustainability. In the absence of technical assistants
and project funds during the two crises, it took good leadership from volunteer management
board members to safeguard members assets (savings) and institute risk management
measures to ensure sustained growth (policies to curtail loans, increased fees on loan
applications, increased capitalization of dividends from savings etc.).
145. Smart subsidies: The importance of smart subsidies approach33 (direct support to
cover costs of partner MFIs including branch buildings, technical assistance/institutional
building of MFIs and operating costs) in microfinance operations as an incentive in
mobilization of owners equity for the development of sustainable grassroots institutions
cannot be underestimated. The project showed that targeted smart subsidies can
leverage/facilitate increased access to financial services to low-income populations. IDA
funds subsidized the five microfinance networks and not the cost of funds to beneficiaries
(interest rates) which could have distorted the market. Subsidies supported technical
assistance, leveraged MFIs fixed costs (construction of MFI branches) as well as operating
start-up costs. At closing, the project had supported the creation of 236 MFIs (compared to
just 59 at the design stage) by focusing its support on institution strengthening rather than
lines of credit or subsidized interest rates. The approach has indeed proven successful with
operationally self sufficient MFIs with potential to cater to the needs of the poor in years to
come.
146. Recommendations of supervision: Where issues for management action are raised
in supervision reports, it is important for management to make quick decisions and take stern

33

In microfinance sector it is important to subsidize the institutions and not clients cost of borrowing.

41

position (including to either close the project or suspend funding) to send a strong message to
the borrower and rectify the situation before the damage is too big. If the recommendations
of supervision missions (during the last three years of implementation) were taken into
account on time, the issue of poor management at the PIU could have received due attention
from the government. This could have facilitated orderly closure of the microfinance project
and timely take off of the PASEF project that is expected to scale up lessons.
147. Government appointee as head of project implementation unit (PIU) can
undermine effective implementation especially when technical competencies are not matched
with project requirements as was the case in this project. Project staff including top
leadership should be hired on merit and rewarded competitively to avoid staff conflict which
could lead to low morale as was the case in this project. Also in case of inefficiency it
becomes difficult for the World Bank to fire or replace a government employee. The
Executive Secretary of the PIU was a government appointed employee who supervised
project remunerated staff with better terms than those of government employees.
148. Supervision of affiliates by the MFI networks can effectively complement that of
the regulator especially in the conflict affected countries. During the political crisis, the
MFI networks were resilient and continued to supervise their affiliates when the Regulator
was not able to do so due to political insecurity in the provinces. This can only work when
complementary supervision is anchored upon a sound legal and regulatory framework
(including clear definition of prudential norms and supervision methodologies for the
different types of MFIs) is in place, and the stakeholders are appropriately trained as was the
case in Madagascar for this project.
7.

Comments on Issues Raised by Borrower/Implementing Agencies/Partners

7.1

Borrower/implementing agencies

149.

The Borrower/Implementing agency did not prepare a completion report.

7.2

Cofinanciers

150. There was a pledge of about US$1.9 from other donors (EU, UNCDF, DID) as
parallel funding which was not recorded. ICR mission was informed that these contributions
were estimates based on donors interest and intention at the time of appraisal. As such there
was no contractual obligation between IDA and other donors. Discussion with MFIs visited
revealed that UNCDF provided direct funding to some of the MFIs in support of training
women groups through the Savings and Loan Associations (SLAs) established with support
from the project.
7.3

Other partners and stakeholders

151.

Not applicable.

42

Annex 1: Project Costs and Financing


(a)

Project Cost by Component (in USD million equivalents)

Components

Appraisal Estimate
(USD millions)

Improve legal, judicial, and


regulatory framework
Develop MFIs
Build capabilities in microfinance
Conduct studies
Coordinate project
Equipment
PPA financing
Total Baseline Cost
Physical Contingencies
Price Contingencies
Total Project Costs
Front-end fee PPF
Front-end fee IBRD
Total Financing Required
(b)

1.16
16.29
1.24
1.12
2.74
0.12
1.28
23.87
0.00
0.00
23.87
0.00
0.00
23.87

Actual/Latest
Estimate
(USD millions)
0.81
15.93
1.20
1.18
1.80
0.19
1.98
23.09
0.00
0.00
23.09
0.00
0.00

Percentage of
Appraisal
70%
98%
97%
105%
66%
158%
155%
97%
0.00
0.00
97%
00.00
00.00

Financing

Source of Funds

Type of
Cofinancing

Borrower
International Development
Association (IDA)
Foreign Private Commercial Sources
(unidentified)

Appraisal
Estimate
(USD
millions)
1.80

43

Actual /
Latest
Estimate
(USD
millions)
1.00

Percentage of
Appraisal
55%

23.87

23.09

97%

0.00

0.00

0.00

(c)

Financing by Component including Additional Finance


Original
Financing
(SDR)

A. Improve legal, judicial,


and regulatory framework
B. Develop MFIs
C. Build Capabilities in
Microfinance
D. Conduct Studies
E. Coordinate Project
Equipment
PPF
Totals
Project burn rate at closing

Additional
Financing
(SDR)

Total
Financing
(SDR)

Total
Financing
(US$)

416,300

340,000

756,300

1,164,702

8,005,938

2,520,000

10,525,938

16,209,945

725,193

60,000

785,193

1,209,197

610,337
982,328
70,000

110,000
360,000
10,000

720,337
1,342,328
80,000

10,810,096

3,400,000
86%
December
2010 &
94%
April 30,
2011

14,210,096

1,109,319
2,067,185
123,200
0
21,883,548

100%
(in 2006)

Notes:
Exchange rate used: SDR 1 = US$ 1.54.
Slight variations are noted between PAD and actual due to exchange rate effects.
PPF relates to the original financing
Phase 1 of original APL ended on 12-30-2006 and all funds were disbursed. The burn rate for Additional Financing was 86 percent at closing in
12/30/2010. The project was granted extension to April 2011 to disburse commitments which brought the burn rate to 94 percent in April 30th.

44

Annex 2: Outputs by Component


Unlike in the datasheet, the detailed results framework below has maintained the PDOs and IOs
as were defined in the original PAD and at restructuring in 2007. This will provide an
understanding of the status quo (at design) and the evolving complexity as PDOs, Intermediate
Outcomes and targets became comingled at design and after restructuring in 2007. As explained
in the main text of this report, the targets were revised up-wards during restructuring in 2007 to
take into account the evolving needs of the sector and of the MFI networks.
Table 17. Results Framework - Outputs by Component - PDOs
Project
Development
Objectives
(PDO)
PDO Indicator
1:*
Value
(Text)

Date achieved
Comments
(incl. %
achievement)
PDO Indicator
2:*
Value

Baseline Value

Original Target
Values
(from approval
documents)

Revised Target
Values
(as approved by
original approving
authority)

Actual Values Achieved


at Completion or Target
Years

Enabling laws and regulations for MFIs


Several legal
impediments
exist for MFIs
operating in
Madagascar

Microfinance law
and regulations that
reflect international
best practice are
issued, adopted and
implemented

Microfinance law is
effective and
regulations that
reflect international
best practice are
adopted

At closing, laws and


regulations were adopted and
published defining prudential
regulations governing
microfinance institutions
relating to capital adequacy,
liquidity, risk ratios, financial
reporting, internal controls,
and governance issues
including limitation to credit
for the Board, and emergence
and dissolution of MFIs. The
banking law (1996) was
modified to fit the
requirements of MF sector.
The Central Bank (CB)
issued 11 regulations
including 2 decrees, 8
instructions and I legislation
based on international best
practices. This improved the
supervisory framework for
MFIs in the country. The
CBs supervisory capacity
was improved and staffs are
capable to enforce application
of these regulations and MFIs
are in full applicant.
20-May-1999
20-May-1999
13-March-2007
31-December-2010
Targets achieved with clear long term impact as demonstrated by CBs ability to nurture entry
and growth of MFIs in an embryonic and growing MF sector in Madagascar.
Increased access to financial services by low income populations

2 MFI Networks

About 72,500 low


income families

45

Existing five SLA


networks are viable

5 viable MFI Networks exist


in four provinces with 236

Project
Development
Objectives
(PDO)
(Quantitative/Te
xt)

Date achieved
Comments
(incl. %
achievement)

PDO Indicator
3:*
Value
(Text)

Date achieved
Comments
(incl. %
achievement)

Baseline Value

with 59
SLAs/MFIs exist
and reach 30000
clients

Original Target
Values
(from approval
documents)
access financial
services provided by
SLAs/MFIs

Revised Target
Values
(as approved by
original approving
authority)
and able to offer
services to 300,000
members

Actual Values Achieved


at Completion or Target
Years
MFI branches offering
diversified financial services
to 391538 members.

20-May-1999
20-May-1999
13-March-2007
31-December-2010
Targets achieved and in some cases exceeded in this PDO which consumed more than 70% of
total project budget. All MFI Networks are on average operational self sufficient (106%) and
financially self sufficient (103%). MFI Networks have broader and deep outreach with 236
branches offering diversified financial and non financial services (savings, credit pension
payments & training to women groups) to 391538 low income families of which 51% are women.
Most of the MFI branches (85 percent) are in remote rural areas.
Greater efficiency in judicial system (through improved legal texts and procedures)
Usury law exist
restricting
growth of
microfinance
sector.

Liberalization of
interest rates in
microfinance and
simplification of
legal procedures for
collateral seizure

Liberalization of
interest rates is
effective and
microfinance
collateral is
recognized in legal
procedures for
collateral seizure

The MF law on collateral


procedures aligned with
international best
standards was passed.
However the law to
abolish usury though fully
prepared, is yet to be
submitted to the
Parliament for processing
to become a law.

20-May-1999
20-May-1999
13-March-2007
31-December-2010
Target partially achieved.
The new MFI law aligned with international best standards was passed taking into
account all categories of institutions operating in the country but law could be improved
to clarifying the role of CSBF in case of dissolution of an MFI.

PDO Indicator
4:
Value
(Text)

Date achieved

The old usury law has not formally been abolished but it is not in application. MFIs and
other financial institutions are not obliged to adhere to the out-dated usury law and in
fact they currently set competitive market interest rates. The drafted usury law is
expected to be submitted to the Parliament and passed in 2011 though it is doubtful if
this will happen due to the transitional nature of the government.
Increased productivity and improved standards of living of microfinance clients

No baseline

Impact study to
confirm improved
standards of living

20-May-1999

20-May-1999

46

Impact study to
confirm improved
standards of living

An Impact study was


conducted and it confirms that
standards of living of
beneficiaries were improved.
This was complemented by 16
intermittent studies including
feasibility studies geared on
expansion to new provinces,
new MFI branches & products
etc).
31-December-2010

Project
Development
Objectives
(PDO)
Comments
(incl. %
achievement)

PDO Indicator
5:
Value
(Text)

Date achieved

34

Revised Target
Values
Actual Values Achieved
Baseline Value
(as approved by
at Completion or Target
original approving
Years
authority)
The impact study (2005) indicated that low income population have socially and
economically benefited from the program through increased access as evidenced by a high
bank penetration rate reported (average 11 percent) and diversified products that are offered
by MFIs (pension payment system, savings and loans including warehouse receipt for
agricultural products) .
The major recommendation of this study was the need to increase womens participation
which led to a revised strategy (including setting a target of 50% during restructuring) to
reinforce solidarity group lending complemented with specialized training for women
groups. The study reiterated the need to remain focused on social targeting by ensuring that
loan size did not deviate far above the GDP/capita which was fully observed. The feasibility
study concluded the need to expand the program to cover more provinces due to the positive
social impact observed for beneficiaries in the first two provinces.
In addition to savings mobilization the proximity of services to the low income segment is
among some of the benefits mentioned during ICR data collection focused group meetings
with beneficiaries.
This impact study was conducted before the restructuring of the project for additional
financing. The study findings indicate that standards of living of beneficiaries had improved.
The study confirmed that overall 57 percent of the interviewed beneficiaries reported that
their standards of living had improved as a result of participating in the project. Rural
farmers reported that they were able to increase their land surface holding and bought
fertilizers and inputs which increased productivity. In Lac Alaotra about 54 percent of
interviewed beneficiaries were able to buy improved agriculture equipment and 48 percent
increased their land holding (at appraisal Lac Alaotra was reported to have high incidence of
land seizure by money lenders - loan sharks) who were the main source of credit.34 In
Fianarantsoa 40 percent reported increased number of livestock holding. Overall 40 percent
of the interviewed beneficiaries reported increased revenues, 39 percent had increased school
enrolment for their children due to income from their businesses. Overall 33 percent
reported improved daily diet and 29 percent improved health status of their families. Focus
group discussion reported that some borrowers were able to make home improvements due
to profits gained from their businesses. Some were able to buy consumer goods like radios,
television and fridges (See tables underneath this matrix for additional impact data). The
instability during the additional financing phase (2007 2010) made it difficult to undertake
another study towards the end which could have provided updated evidence of the improved
productivity and beneficiaries standard of living. A thorough post implementation impact
study will shed light on the extent of the socio-economic benefits accrued to the low income
segment in Madagascar.
Appropriate supervisory methodologies for MFIs established
Original Target
Values
(from approval
documents)

MFIs are not


adequately
supervised by the
authorities

Appropriate laws
and regulations are
passed and
implemented for all
MFIs.

All licensed MFIs


are adequately
supervised by the
authorities

20-May-1999

20-May-1999

13-March-2007

Restructuring paper for Additional Financing 2007.

47

A law was passed giving the


Central bank supervisory role
of MFIs with clear mandate.
This resulted to an organized
supervisory institutional
framework of MF sector in
the country.
31-December-2010

Project
Development
Objectives
(PDO)
Comments
(incl. %
achievement)

Revised Target
Values
Actual Values Achieved
Baseline Value
(as approved by
at Completion or Target
original approving
Years
authority)
Targets achieved and impact is visible in the financial sector. Different types of MFIs have a
streamlined registration and supervision mechanism that is strictly adhered.
MFIs are registered based on size and capital structure. The Banking Supervision Commission
(CSBF) undertakes registration and supervision of MFIs level 2 & 3 (The two categories have
high capital requirements). MFIs in level 1 are not subjected to strict regulations, but they are
coordinated by the Ministry of Finance through a special MF unit -the National Microfinance
Coordination Unit (CNMF). CSBF undertakes regular on and off-site supervisions of licensed
MFIs. All level 2 & 3 MFIs are required to report on quarterly basis.(see attached document on
list of laws and prudential regulations passed for more details).
Original Target
Values
(from approval
documents)

48

Table 18. Results Framework - Outputs by Component IO Indicators


Intermediate
Outcome
Indicator
IO Indicator
1:
Value
(Text)

Date achieved
Comments
(incl. %
achievement)

IO Indicator
2:*
Value
(quantitative/
Qualitative)

Date achieved
Comments
(incl. %
achievement)

Baseline Value

Revised Target
Values
(as approved by
original approving
authority)

Original Target
Values
(from approval
documents)

Actual Values Achieved


at Completion or Target
Years

Prudential rules are issued for all MFIs


Several legal
impediments
exist for MFIs
operating in
Madagascar

Appropriate laws
and regulations are
passed and
implemented for all
MFIs

Appropriate laws and


regulations are passed
and implemented for
all MFIs

Aligned with the banking law


(1996), new prudential
regulations for all financial
institutions, including
microfinance organizations
were issued by the CB and all
FIs including MFIs are in full
compliant.

20-May-1999
20-May-1999
13-March-2007
13-December-2010
Targets achieved. The regulator performed very well on this indicator as detailed prudential ratios
for the different categories of MFIs were issued including chart of accounts all based on
international standards for microfinance industry. Prudential norms defines solvency requirements,
risk concentration, lending to directors, equity investments and internal control, chart of accounts,
capital adequacy, and publishing of accounts as well as licensing requirements for microfinance,
external auditors, and liquidity.
Two existing SLAs (Fianarantsoa and Toamasina) are strengthened and two new SLA
networks are created in Tana and Antsiranana and perform well
Five MFI Networks exist with
Five SLA networks
2 MFI Networks 102 SLAs in
236 branches reaching 391,538
with 200 SLAs in
with 59
operation reach
operation reach about disadvantaged groups of which
SLAs/MFIs exist about 72,500 SLA
51% are women.
300,000 members of
and reach 30,000 members in the
which 50% are
clients
disadvantaged
women and 25% from
groups
disadvantaged groups
A total of US$28,701,759 in
Total savings reach
savings mobilized and
US$2.9 million and Total savings reach
US$22,909,588 of loans
US$25 million and
Total outstanding
outstanding.
Total outstanding
loans US$3.5
loans US$23 million.
million.
All five MFI Networks are on
average operationally self
All MFIs are
sufficient (106%).
operationally
sustainable
20-May-1999
20-May-1999
13-March-2007
31-December -2010
Target achieved and exceeded as three new networks were created and all the five MFI Networks
are also on average operational and financially Self Sufficient (103 percent).

49

Intermediate
Outcome
Indicator
IO Indicator
3:*
Value
(quantitative/
Qualitative)

Date achieved
Comments
(incl. %
achievement)

IO Indicator
4:**
Value
(quantitative/
Qualitative)

Date achieved
Comments
(incl. %
achievement)
IO Indicator
5:**
Value
(quantitative/
Qualitative)
Date achieved
Comments
(incl. %
achievement)

Revised Target
Values
Baseline Value
(as approved by
original approving
authority)
Build capacity in microfinance through training
Original Target
Values
(from approval
documents)

Only few
Malagasy have
had formal
training and can
properly manage
an MFI

80 persons attend
one or more
microfinance
courses.

Training program
delivers specially
designed and adapted
technical modules to
practitioners from all
MFIs in the country.

Actual Values Achieved


at Completion or Target
Years

A total of 19 training sessions


were organized through an
umbrella microfinance apex
association (APMF) for more
than 200 MFI staff and
practitioners.

Evaluations confirm improved


Evaluation of
capacity of MFI practitioners
program confirms
increased knowledge (see training reports attached in
the portal).
and skills for proper
management of MFIs
20-May-1999
20-May-1999
13-March-2007
31-December -2010
Targets achieved with positive impact as evidenced by solid capacity of MFI networks in credit
management including operational risk. Interview with participants during ICR data collection
indicated a preference to structured courses offered by CGAP, Boulder and Turin Center as
opposed to locally tailored modules. Also, exchange visits to peer institutions are preferred as they
offer practical experience as opposed to classroom learning. Increased capacity in the field of
microfinance sector was also reported with more locally available consultants and consulting firms
specialized in microfinance development.
Financial Self-Sufficiency
N/A

N/A

20-May-1999

Financial SelfSufficiency for MFI


networks to be
measured (< 100%
for all MFI networks
13-March-2007

MFI Networks MFI Networks


have an average OSS of 106%
and FSS 103%

Portfolio at Risk
(PAR) of MFI
Networks to be
measured

10%

31-December31-December-2010
2010
Results achieved. No targets were set for this core mandatory indicator which was added but best
practice is to achieve breakeven point of 100%. Only three MFI Networks are slightly behind
schedule as explained in the text (OTIV Tana 94%, Mangoro 99.14% and Toamasina 97.16%).
Portfolio at Risk (PAR)
N/A

N/A

20-May-1999
13-March-2007
31-December-2010
No targets were set on this core IO. This is NPL ratio > 90 days. There was a 4% decrease on this
ratio from 14% reported in 2009. MFIs have revised credit policies to mitigate the rising NPL
ratios. Less lending with more savings mobilization strategy is in effect since 2009. Given the
financial crisis, this performance is acceptable when compared to the average reported by peer
institutions in SSA. With an Average Return on Assets which is above 3% the MFIs are still
profitable and viable regardless of the NPL which has been cyclic due to financial and political
crisis.

50

Intermediate
Outcome
Indicator
IO Indicator
6:
Value US$
(quantitative/
Qualitative)
Date
achieved
Comments
(incl. %
achievement)
IO Indicator
7:
Value
(quantitative/
Qualitative)
Date
achieved
Comments
(incl. %
achievement)
IO Indicator
8:
Value
(quantitative/
Qualitative)
Date achieved
Comments
(incl. %
achievement)
OI Indicator
9: (optional)
Value
(quantitative/
Qualitative)
Date achieved
Comments
(incl.
%
achievement)

Revised Target
Values
Baseline Value
(as approved by
original approving
authority)
Outstanding Microfinance Loan Portfolio
Original Target
Values
(from approval
documents)

US$8.37 million
20-May-1999

US$23 million
13-March-2007

Actual Values Achieved


at Completion or Target
Years

About US$22 million


31-December-2010

Targets achieved at 99% of PAD targets. As explained above, loan underwriting is on hold to
mitigate the NPL risk. Savings mobilized exceed loans (US$28.7 million) at closing indicating a
sustained balance sheet growth amid reduced interest income due to slow loan underwriting.
No of active loan accounts -Microfinance
4 027

20-May-1999

70,212

13-March-2007

48,022

31-December-2010

Number of active loans to members does not include group loans given to womens savings and
loan associations which was 1,562 in 1999 and 18,715 at closing. If added the baseline would be
5,589 and closing figure of 66737. Membership growth trend for all MFIs has been on average
21% per annum which is impressive.
Active Loan Accounts for Women
1562

4,505

18715

20-May-1999
13-March-2007
10-December-2010
The reported numbers relate to women group loans. In addition to this, women constitute about
51% of total members which assumes that about the same ratio of total active loan is attributed to
women members.
Percentage of project-supported institutions that are reporting on this indicator
Two MFI
225 MFIs
Five MFI Networks with 236
Networks with
branches.
59 branches
20-May-1999
10-December-2010
10-December-2010
The Management Information System applied by some of the MFI Networks facilitates bi-monthly
data synchronization between branches and the MFI Network. However, only one MFI Network
has fully migrated to a real time portfolio synchronization system. All Networks have included
migration to real time portfolio management system as a priority in their business plans (2010 2013).

* = Revised indicator / **= New Core Indicator

51

Additional analysis on Efficiency/Efficacy


Table 19. Performance of Individual MFI networks (Additional financing era 2007 2010)
MFI Network 1: Volatile Performer Lack Alaotra MFI Network

OSS

2007
Achieved/Proje
ct paper
targets)

2008
Achieved
/Project
Paper targets

2009
Achieved /Project
Paper targets

142%* Target
159%

109.29%
Target 163%
104.76%

50.31% Target
175%
50.31%

FSS (targets n/a)


Profit or Loss
(12-30-2010)targets n/a

2010 (project was to


end in 2009 no
targets were
established for
2010)
99.14%
99.14%
MGA 523,860,000
(US$261)

*Achieved for 2006 is considered as achieved for 2007 due to lack of substantiated information for this period

MFI Network 2: Moderate Performer - OTIV TANA MFI Network

OSS

2007
(Project
paper
targets)
140%*
Target
142%

2008
Achieved
/Project Paper
targets

2009
Achieved
/Project Paper
targets

2010 (project was to end in


2009 no targets were
established for 2010)

99.73% Target
145%

97.54% Target
148%

98.91%

93.64%

92.62%

FSS (targets n/a)


Profit or Loss (1230-2010)-targets n/a

94.41%
MGA 166,158,348.91
(US$83,000)

*Achieved for 2006 is considered as achieved for 2007 due to lack of substantiated information for this period

MFI Network 3: High Performer Diana MFI Network


2007
(Project
paper
targets)
OSS
FSS (targets n/a)
Profit or Loss (1230-2010)-targets n/a

156%* Target
160%

2008
Achieved
/Project Paper
targets
131.21% Target
163%
108.82%

2009
Achieved
/Project
Paper
targets
131.18%
Target
174%
106.98%

2010 (project was to end in


2009 no targets were
established for 2010)

*Achieved for 2006 is considered as achieved for 2007 due to lack of substantiated information for this period

52

157.59%
122%
MGA 1,408,362,000
(US$704,000)

MFI Network 4: Moderate Performer Toamasina MFI Network


2007
Achieved/Project
paper targets
95%* Target
100%

OSS
FSS (targets n/a)
Profit or Loss
(12-30-2010)targets n/a

N/A

2008
Achieved
/Project Paper
targets
89.96% Target
110%)

2009
Achieved
/Project Paper
targets
78.77% Target
120%

97.16%

86.86%

78.40%

97.16%

2010 (project was to end


in 2009 no targets were
established for 2010)

MGA 130,566,350
(US$65,000)

*Achieved for 2006 is considered as achieved for 2007 due to lack of substantiated information for this period

MFI Network 5: Moderate Performer Fianarantsoa MFI Network


2007
(Project paper
targets)
OSS
FSS (targets
n/a)
Profit or Loss
(12-30-2010)targets n/a

76%* Target 86%

2008
Achieved
/Project
Paper
targets
77.47%
Target 104%
74.50%

2009
Achieved
/Project Paper
targets

2010 (project was to end


in 2009 no targets
were established for
2010)

89.21% Target
132%

122.45%

84.74%

115.00%
MGA 245,770,547.75
(US$122,885)

*Achieved for 2006 is considered as achieved for 2007 due to lack of substantiated information for this period.

53

Table 20. Impact on Beneficiaries as reported in the AGEPMF Impact Study report 2005
(Pre-Additional Financing Period)
Characteristic of Beneficiaries
Beneficiaries who have agriculture
as principal activity
Who have one or more house
(includes retirees)

34%

68%

Have land

67%

Social Impact to Beneficiaries - Comparison of project beneficiaries and general population


MFI Members
(OTIV/TIAVO in
2005)

Indicators
No.
1
2
3
4

Indicator
Age
Old age population 60 +
Average family size
Literacy rate

5
6
7
8

Literacy rate
Access to potable water
Latrine usage rate
% active in agriculture (loans
financed agriculture and the
related value chain activities)
% having a salairy
Population active in commerce

9
10

General Population
(comparison data for
year 2002)

Average: 41
8,2%
4,7
100% (for 94% of
interviewees)
98,7%
85,3%
89,4%
34%

Life expectancy : 52
4,6%
5,0
60%

49%
22,5%

4%
5,2%

53,5%
29,4%
54,7%
78%

Conclusion of the study


Access to portable water
Utilisation of latrines
Capacity to pay for medication in case of
need
Frequence of protein consumption (meat,
fish, eggs)
Net schooling rate
% of families with children who are not
schooling

85,3% have access to potable water


89,4% use latrines
78% can afford to pay
72% consumption of more than once a week
100% for 94% of those interviewed
6% of those interviewed have children not
schooling

54

Impact on access to finance in rural areas (rural targeting)


Indicators
% of rural MFI branches
% of members with agriculture as principal activity
% of members who joined one rural MFI branch
Agriculture produits offerts

73%
34%
51%
Rice cultivation, warehouse receipt finance
(stockage), equipment (especially in OTIV Lac
Alaotra ). Crdit stockage ( Community village
cereal banks) in Fianarantsoa since 2004.
73%

% de rural banks

Access to finance from other sources


New members
Dont have
Yes have access from
other sources
Grand Total

56.9%
43.1%

Existing members
56.5%
43.5%

100.0%

100.0%

Total
56.6%
43.4%
100.0%

Other sources of financing (outside the supported MFI Networks)


Type of institution (source of extra financing)
Bank (BOA, BNI-CL) or other MFIs not supported by the project
(CECAM, CEM)
Parents or family members
Development projects (PSDR, Seecaline,..)
Informal money lenders (loan sharks)

Number
163
93
16
6

Depository of beneficiaries savings


Where do you deposit your savings?
OTIV/TIAVO (supported MFI Networks)
Other financial institutions
Other
Grand Total

Number
198
25
129
352

Main Sources of Revenue


Primary source
Agriculture/livestock
Commerce
Artisanat/SME
Salaried
Labourers
Other
Grand Total

Rural
47%
19%
8%
23%
2%
1%
100%

55

Urbain
12%
29%
17%
36%
2%
5%
100%

Grand Total
34%
22%
12%
28%
2%
3%
100%

Impact on Landholding by Beneficiaries


Surface :
< 10 acres
10,01-40 acres
40,01-80 acres
> 80 acres
Total people with land
Pesants with no land

Region
Fianarantsoa LAlaotra Tana Toamasina Diana Grand Total
8
3
48
19
7
85
9
3
25
7
12
56
1
7
15
8
6
37
48
41
54
57
14
214
66
54
142
91
39
392
6
7
7
10
9
39

Impact on Social Targeting (Gender): Measure of Access to finance by Gender groups


Gender
Men
Women
Total

Curent credit?
No
yes
54,59% 47,93%
45,41% 52,07%
100,00% 100,00%

56

Total
52,69%
47,31%
100,00%

Annex 3. Economic and Financial Analysis


Measure of Efficiency
As explained in the main report, a Subsidy Dependence Index (SDI) was adopted as a measure of
efficiency at design. However, at restructuring in 2007 the methodology of calculating the SDI
was changed 35 to Operational Self Sufficiency of 100 percent found to be in line with the
microfinance sector best practice on measuring sustainability which takes into account
profitability and sustainability indices. An MFI can have a high non-performing loan (NPL
core indicator) rate and make losses but when the Return on Assets (RoA) is positive it indicates
that solvability and efficiency are well mitigated. This is the case with the five MFI Networks in
Madagascar which had NPL of 10 percent at closing, reduced profits in 2009 due to the political
and global financial crisis but had average Return on Equity (ROE) of 17.74 percent and a
positive Adjusted RoA (2.36 percent) as described in the main report which indicate that these
five MFI Networks have proved to be profitable, solvent, efficient and sustainable. A
consolidated financial statement for 2010 of the five MFI Networks used to arrive at the above
analysis is provided below.
Table 21. Consolidated Financial Analysis for the five MFI Networks in December 2010
Indicator
Return on Equity (ROE)

Return on Assets

Co
de
A
B
C
D
E
F
G

Calculation Details

2010 (MGA)

Net Operating Profit


Total Equity
Return on Equity (ROE) = (A B)
Total assets beginning of period
Total assets end of period
Average assets
Return on Assets (ROA) = (A F)

2,474,717,247
13,953,656,427
17.74%
74,810,249,384
89,501,118,726
82,155,684,055
3.01%

Avg. Currency dominated assets


Average liability
Inflation rate
Inflationary Adjustments = (H-I) x J
(RATI)
Average outstanding principal for
soft loans
Market Interest rate
Imputed interest amount at the
market rate (L x M)
Actual Interest paid on the loan
(12%)
Grants from AGEPMF

12,789,576,254
7,609,355,928
10.00%
518,022,033

Inflation Adjustments
H
I
J
K
L
M
N
Adjustment to Subsidy

O
P
Q
R

Cost of Fund adjustment for soft


loan + grants
(R = N O + P)

35

671,638,913
15%
100,745,837
80,596,669.56
1, 444 ,152.75
21,593,320.19

Refer to PAD Annex 3 and attachment to Annex 1 of Project Agreement (Credit #3217-1-MAG) Additional
Financing for the SDI method used at design stage.

57

Indicator

Adjustment for in kind


Subsidy

Co
de
S
T
U

Adjusted Return on Assets


(AROA)

V
W
X
Y
Z

Financial Self Sufficiency


(FSS)

A'
B'
OS
S
`C

Calculation Details
Market value of rental of branch
premises
Rent actually paid
Adjustment for in kind subsidy
(AIS = S - T)
Net profit for period
Total adjustments (K+R+U)
Adjusted net profit (V-W) w
Adjusted Return on Assets
(AROA = X F)
Accounting revenue for period
excluding grants
Expenses for period
Adjusted Expenses (A+W)
Operational Self Sufficiency (Z
A')
FSS (Z B)

2010 (MGA)
314,854,916
314,854,916
0
2,474,717,247.00
539,615,353.19
1,936,546,047
2.36%
17,943,922,845.00
16,934,580,644
17,474,195,997.19
106%
103%

Source: Project data & Audit report 2010

Key assumptions:
a.

Mid-term Business Plans of the five MFI networks envision building offices in lieu of
renting. Rental costs will significantly be reduced in the next five years. This in turn will
reduce variable operating costs and positively affect the Financial Self Sufficiency rate.

b.

In kind contribution is not exhaustive as it does not include labor time of Board Members
who mainly work on voluntary basis. If the model was to valorize in kind contribution,
the FSS would be higher than that reported.

c.

Although on average all the MFI networks have achieved operational and financial self
sufficiency, the fluctuation is noticed in 2010 for three MFIs which are slightly below
100 percent just about 5 percent from reaching a 100 percent which is the breakeven
point required). However the three MFIs have higher membership growth rate than
others hence good performance in terms of outreach.

d.

Data used for computations has been verified and is in accordance with the approved
audit report (December 2010).

e.

Only one MFI Network (OTIV Tana) borrowed from the market (MGA 671,638,913) at
12 percent rate in 2010. All other MFI Networks did not borrow in the last two years and
are fully dependent on transformation of member savings to loans.

f.

Return on Equity is 17 percent despite the volatility of MFI networks performance during
this period. This does offer comfort against the high NPL ratio since it indicates that
although MFIs are losing the interest income their own equity (including retained
earnings which are capitalized etc) is productive.

58

Table 22. List of Legal Instruments prepared


This table provides a summary of decrees, orders, instructions, circulars and decisions taken by
the regulator to improve the legal and regulatory framework in the microfinance sector.

Source: CSBF/Secrtariat Gnral/DRE/TSR/SPP

59

Table 23. Classification of MFIs (Level 1 3) including Capital Adequacy Requirements

60

Table 24. List of new Licenses Issued and Classification of MFIs (2008 2010) to MFIs
(from level 1 to 2 & 3)
Year 2008

61

Year 2009

62

Year 2010

63

Annex 4. Bank Lending and Implementation Support/Supervision Processes


(a)

Task Team members


Names

Title

Unit

Lending

Bertrand Ah-Sue
David Freese
Gervais Rakotoarimanana
Herminia Martnez
Jean Delion
Jean-Bernard Maucor
Sidi Boubacar
T. Mpoy-Kamulayi
Supervision/ICR
Andres Jaime
Andrea Vasquez-Sanchez
Ann Christine Rennie
Astrid Manroth
Edward Kabifya Gondwe
Francois Marie Maurice
Rakotoarimanana
Jacqueline Veloz Lockward
Jean Charles Amon Kra
Josiane V. Raveloarison
Korotoumou Ouattara
Lova Niaina Ravaoarimino
Magueye Dia
Mazen Bouri
Nathalie Ramanivosoa
Saholy Andriambololomanana
Sidonie Jocktane
Sylvain Auguste Rambeloson
Volana Andriamasinoro
Zahia Lolila
Ziva Razafintsalama

Sr. Procurement Specialist


Disbursement Officer
Financial Management Specialist
Principal Operations Officer (TTL)
Rural Development Specialist
Economist
Counselor
Sr. Counsel

AFTS2
LOAAF
AFMMG
AFTP1
AFTA2
AFTP1
LEGAF
LEGAF

Sr. Financial Specialist (TTL)


Sr. Program Asst.
Lead Financial Sector Specialist
Senior Energy Specialist
Operations Analyst

ECSPF
AFTFW
SASFP
ECSS2
AFTFP

Sr. Financial Management Specialist

AFTFM

Program Assistant
Sr. Financial Management Specialist
Sr. Private Sector Development
Sr. Financial Sector Specialist (TTL)
Procurement Analyst
E T Consultant
Sr. Private Sector Development
Team Assistant
Senior Program Assistant
Executive Assistant
Senior Procurement Specialist
Program Assistant
Sr. Financial Sector Specialist (ETC)
ICR Primary Author
Senior Rural Development Specialist

AFTFW
AFTFM
AFTFE
AFTFW
AFTPC
AFTFW
AFTFE
AFCCI
AFMMG
AFMGA
AFTPC
AFMMG

65

AFTFW
AFTAR

(b)

Staff Time and Cost


Staff Time and Cost (Bank Budget Only)
USD Thousands (including
No. of staff weeks
travel and consultant costs)

Stage of Project Cycle


Lending
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08

12-

Total:
Supervision/ICR
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Total:

12-

21
23
28
36
27
33
33
37
11
13
262

66

179.39
167.49
-16.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
330.68
0.77
1.91
82.16
92.01
72.02
106.77
108.34
101.86
99.28
113.08
61.69
0.00
839.89

Annex 5. Beneficiary Survey Results


Not applicable.

67

Annex 6. Stakeholder Workshop Report and Results


Not applicable.

68

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR


Report was not available. The Implementing Agency (AGEPMF) submitted activity report
covering the entire period of program implementation with key deliverables to December 31,
2010. However, this is not a formal ICR report from the Government of Madagascar.
The main highlights of the report from AGEPMF are listed below:
The project was instrumental in improving access to finance for the poor in rural areas.
However, there is need to expand and cover the rest of the country since demand for
financial services for the poor still remain largely un-met in the country.
World Bank procedures delayed implementation of activities at certain stages in program
implementation. There is need to streamline World Bank procedures and speed up
program implementation. There is a recommendation to improve communication
between the implementing agency and the World Bank teams. Though not made explicit,
this recommendation is related to program coordination issues which were raised in
several Aide Memoires leading to IDA team at one point threatening to suspend the
PASEF program if the coordinator was not removed.
PASEF program is expected to expand the impact to other parts of the country. There are
concerns about delayed implementation of the follow-up phase (PASEF) program.
It will be necessary to reinforce the approach of performance-based contracts in
supporting MFIs to avoid laxity.

69

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders


Not applicable.

70

Annex 9. List of Supporting Documents


Project Background, Objectives, PDOs, IOs, Targets
Project Information Document (PID), Report 5929 (February 1999)
Project Appraisal Document (PAD), Report 18959-MAG (April 26, 1999)
Development Credit Agreement (DCA), No. 3217-MAG (June 10, 1999)
Project Agreement (PA) with Central Bank of Madagascar, No. 3217-MAG (June 10, 1999)
Proposed Portfolio Restructuring in a Post-Crisis Environment, No. P7561-MAG (October 22,
2002
Project Restructuring Paper, Report 38892-MG (March 13, 2007)
Project Agreement, No. 3217-1-MAG (May 22, 2007)
Financing Agreement, No. 3217-1-MAG
Implementation Status and Results (ISR) Reports
Financial Management (FM) Reports
Project Financing
ISRs & FM reports in the portal
PAD, Restructuring Paper & DCA documents
Project Audit Reports & MFIs Audit Report (2009 & 2010)
Annual Progress Report: AGEPMF 2009 & 2010
Letter to AGEPMF from TTL/FM: Comments on Annual Audit Reports (2010)
Component 1: Policy, Legal/Regulatory
Annual Progress Report: AGEPMF 2009 & 2010
ISRs, PAD & Restructuring Paper
Component 2: Access
Annual Progress Report: AGEPMF 2009 & 2010
Annual Audit Reports (AGEPMF & MFIs)
Portfolio Reports of MFIs
Business Plans (Mid-Term 2010-2013) of MFIs.
Component 3: Build Capabilities in Microfinance
AGPM Progress Report (December 31, 2010)
Interviews with APIMF (Apex association), sector practitioners and MFI staff & Board members
ISRs of the project
Component 4: Conduct Studies
Audits for Project Implementation Unit (PIU) and MFI Networks 2010
Impact Study Report AGEPMF (2005): FACET BV Supporting Small Enterprises

71

Literature
1. Stefano Paternostro et al, 2001, Cornel Food and Nutrition Policy Program Working
Paper No. 120
2. (2006) UNCDF Building Inclusive Financial Sectors in Africa,
http://www.uncdf.org/english/microfinance/pubs/bluebook/pub/index.php?get_page=cont
ents
3. (2009) CGAP Measuring Results of MF Institutions, http://www.cgap.org/gm/document1.9.36551/Indicators_TechGuide.pdf
4. Government of Madagascar (2006), Madagascar Action Plan 2007-2012,
http://siteresources.worldbank.org/INTMADAGASCAR/Resources/MAP
5. Microfinance Mix Data various surveys, reports and statistics for SSA,
http://www.cgap.org
6. (2010) CGAP Advancing Savings Services: Resource Guide for Funders A Technical
Guide
7. (2008) CGAP: Africa Microfinance Analysis and Benchmarking Report
8. (2009) Sub-Saharan Africa Microfinance Analysis and Benchmarking Report,
http://www.cgap.org/gm/document1.9.43711/2009_SSA_Microfinance_Analysis_Benchmarking_Report.pdf
9. (2010) CGAP: MIX Microfinance World: Sub-Saharan Africa Microfinance,
http://www.cgap.org/gm/document1.9.43711/2010_SSA_Microfinance_Analysis_Benchmarking_Report.pdf
10. Analysis and Benchmarking Report 2010, http://www.cgap.org/gm/document1.9.43711/2010_SSA_Microfinance_Analysis_Benchmarking_Report.pdf
11. (2010) CGAP Financial Access Sub-Saharan Africa Factsheet,
www.cgap.org/financialindicators
12. (2002), Memorandum and Recommendation by the President of the International
Development Association to the Executive Directors on a Proposed portfolio
Restructuring in a Post-Conflict Environment in the Republic of Madagascar, October 22,
2002, Report No. P7561-MAG.
13. (2007), Country Assistance Strategy for the Republic of Madagascar for 2007-2011,
March 7, 2007, Report No. 38 135-MG, wwwwds.worldbank.org/external/default/WDSContentServer/ WDSP/IB/2007/04/27/
000020953_20070427084117/Rendered/PDF/38135.pdf.
14. (2010) Madagascar GNI,
http://siteresources.worldbank.org/INTPROSPECTS/Resources/3349341199807908806/Madagascar.pdf
15. Madagascar: Country Brief, http://go.worldbank.org/D41QD46W10.

72

IBRD 33439R
45E

50E

Antsiranana

Mayotte
(France)

MADAGASCAR

Ambilobe
Vohimarina

Massif
Ts a r a t a na na

Bo

BONY

Andilamena

BETSIBOKA ALAOTRA
MANGORO
Andriamena

of

MELAKY

Kandreho

Lake
Alaotra

iboka

Maintirano

Ankazobe

Andilanatoby

Miarinarivo

Moramanga

Malaimbandy

kar

Ambositra

Ambatofinandrahana

HAUTE-MATSIATRA

Manja

Fianarantsoa

Varika

ATSIMOANDREFANA

Mananjary

VATOVAVYFITOVINANY

Beroroha
goky
Man
Ankazoabo

Pic Boby
(2,658 m)

Ihosy

Manakara

IHOROMBE
Ma
na
na
ra

Sakaraha
Betroka

Farafangana

ATSIMOATSINANANA

MidongyAtsimo

Onilahy

Ampanihy

eau

lat
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an
ar A n d
n
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Ambovombe
Beloha
a

Androka

Mand
rave

Berakete

ANDROY

45E

40

80

40

120

200 Kilometers

160

80

120 Miles

50E

MADAGASCAR
SELECTED CITIES AND TOWNS

Tsivory
This map was produced by
the Map Design Unit of The
World Bank. The boundaries,
colors, denominations and
any other information shown
on this map do not imply, on
the part of The World Bank
Group, any judgment on the
legal status of any territory,
or any endorsement or
acceptance of such
boundaries.

20S

Ambohimahasoa

Mandabe

Betioky

Mahanoro

AMORONI MANIA

MENABE

Toliara

OCEAN

Mang
oro

Antsirabe

An

20S

Morondava

Antanifotsy

VAKINANKARATRA

Man
ia

INDIAN

Vatomandry

ata

Miandrivazo

Tsiribihina

a
an
ch
re
e
Fih

Fenoarivo-Atsinanana

Toamasina

Tsiafajovona
(2,642 m)

Morombe

Soanierana-Ivongo

ANALAMANGA
ATSINANANA
BONGOLAVA
ANTANANARIVO
Tsiroanomandidy
ITASY

Antsalova

Belo Tsiribihina

Mananara

ANALANJIROFO

Ambatondrazaka

ets

aho

Maroantsetra

Mandritsara

Mampikony
em
ar
iv

va

Maevatanana

Ma
na
mb

ajamba
ah

a
ol

Befandriana

SOFIA

Soalala

ff

15S
Sofi

Mahajanga

Cli

Antalaha

Antsohihy

Besalampy

Sambava

SAVA

Bealanana

Mahavavy

iq

DIANA

Maromokotro
(2,876 m)

Cliff of Ang
avo

15S

Ambanja

REGION CAPITALS
NATIONAL CAPITAL

ANOSY
Amboasary

Tolanaro

RIVERS
25S

MAIN ROADS
RAILROADS
REGION BOUNDARIES
MAY 2011