Bank of Africa and Mutual Guarantee Associations in Madgascar - Analysis and Recommendations

This study was commissioned by the UN Public Private Alliance for Rural Development in order to assess the performance of Bank of Africa's approach to rural finance. Bank of Africa (BOA) is the leading commercial bank in Madagascar's microfinance sector. BOA provides refinancing to Madagascar's microfinance institutions, makes individual loans to the rural sector through 14 of its 49 branches, and has piloted an innovative Mutual Guarantee Association (MGA) program. This study concerns the performance of the Mutual Guarantee Association model.The study concludes that:

• The MGA model holds substantial promise for increasing rural households' access to financial services, in a way that is attractive to both borrower and bank.
• However, the model does not appear ready for replication in other locations in Madagascar.
• The MGA lacks adequate financial resources to meet basic operating expenses necessary for good management of the guarantee fund, the processing of loan dossiers, and the enforcement of repayment.
• The recent track record of high defaults and un-recovered loans requires a vigorous response.

The Project Team concludes that it would be advisable to implement a number of strengthening measures in MGA Miarinarivo, in addition to adding another pilot site, and continuing to test the model until it is proven as a self-sustaining, effective institution.