Microfinance Loans Help Reduce Poverty In Madagascar

Microfinance Loans Help Reduce Poverty In Madagascar

In Madagascar, where 85 percent of the population lives on less than $1.25 a day, the microfinance industry has experienced rapid growth in the last 10 years, according to a report in The Guardian.

The poor often lack access to formal banking and credit services, the report said. By some estimates, 2 percent of low-income households have access to credit, relying instead on informal moneylenders who charge annual interest rates for unsecured loans of 120 percent to 400 percent. Microfinance institutions, by comparison, reportedly charge an average rate of 36 percent for or 2 percent to 4 percent per month.

Madagascar’s microfinance sector has about 31 players including state, foreign investor and donor-supported initiatives that operate under a legal framework regulated by the central bank.

Since 2011, the U.N. Development Program and U.N. Capital Development Fund have jointly managed a $350,000 support program for inclusive finance for Madagascar, which operates through three microfinance institutions and charges zero interest on loans.

Fatma Samoura, U.N. Development Program’s country representative, says: “Through this mechanism, we have good hopes that the cycle of poverty caused by poor farmers’ debts will be broken.”