Justine Sija, 60, begins her day at 4am, when she buys catch from local fishermen to hawk on the streets of St Augustin Village, in Madagascar’s southern Atsimo-Andrefana Region. The work is hard, but in the last year, access to microcredit has boosted both her business and her hope for the future.
“Before, I used to make 10,000 to 20,000 ariary (US$4.50 to $9) a day. Now, with the credit, I can make double that amount,” she told IRIN. “I can put my four [grand]children in school, buy some livestock and save the rest of the money. Eventually, I plan to sell other goods also, like rice and other local products,” Sija said.
Madagascar’s microfinance sector was established in 1990, but it began to experience rapid growth only in the last 10 years; it was worth about 22.7 billion ariary ($10 million) in 2002, and by 2011, it was valued at about 244.4 billion ariary ($112 million).
Microfinance is seen as a vehicle to help Madagascar attain some of its Millennium Development Goals (MDGs), particularly the goal on eradicating extreme poverty. The UN Capital Development Fund (UNCDF) says about 85 percent of the population lives on less than $1.25 a day.
The poor often lack access to formal banking and credit services; according to some estimates, only 2 percent of low-income households have access to credit. Instead, they rely on informal money lenders, who charge annual interest rates for unsecured loans of between 120 to 400 percent - compared with microfinance institutions’ (MFI) average rate of 36 percent for the same period, or between 2 and 4 percent a month. (The country’s annual inflation rate was pegged at 5.4 percent in March 2013.)
Madagascar’s microfinance sector has about 31 players, which include state, foreign investor and donor-supported initiatives, operating under a legal framework and regulated by Madagascar’s Central Bank.
Since 2011, the UN Development Programme (UNDP) and UNCDF have jointly managed the $350,000 Support Programme for Inclusive Finance for Madagascar (PAFIM), which operates through three MFIs and charges a zero interest rate on loans.
“Through this mechanism we have good hope that the cycle of poverty caused by poor farmers’ debts will be broken,” Fatma Samoura, UNDP’s country representative, told IRIN.
“People in Madagascar need to work together and the poor here need a direct approach to development. The products are there, but people also need the right education to be able to access them,” said Harinavalona Rajaonah, who works at Ombona Tahiry Ifampisamborana Vola (OTIV), one of the UNDP-partnered microfinance organizations.
“We have tried to put a culture of credit access into place here. The hardest part is to change the mentality of the people,” Jean Olivier Razafimanantsoa, regional director of the Central Bank-registered credit cooperative Caisses d'Epargne et de Crédit Agricole Mutuelles (CECAM), told IRIN.
“We work together with other organizations in the city, as some people are a member [of other MFIs] everywhere, and so they take out too many loans. Also, the farmers tend to overestimate how much they need. They want us to finance their rice crop, which is worth 700,000 ariary ($321), but they’ll come and ask for two million ($917). When you ask them how they got to this amount, they don’t know,” he said.
All microloan borrowers receive business advice, but with technical assistance and funding from UNDP, microfinance players have also established microcredit education programmes aimed at vulnerable groups.
One such programme, run by CECAM, mainly targets poor female street vendors. Razafimanantsoa says the programme has 1,303 clients, including Sija and other women from St Augustin Village. The women must save between 200 and 400 ariary ($0.09 to $0.18) a week, as part of the initial loan agreement.
They are then enrolled in lending system that goes through nine cycles, the first entitling the recipient to an 80,000 ariary ($36) loan. Each time the clients repay a loan, they are eligible for another, with progressively higher loan ceilings up to 300,000 ariary ($137). Repayment schedules range from a few months to a year. The programme also offers education on basic money management, family planning and health issues.
After completing all the cycles, the women become eligible for CECAM’s normal commercial microcredit system.
“Right now, our goal is for these women to eat three times a day and feed their children, but eventually, they should be able to build up a guarantee to get a commercial business going and enter into the regular CECAM system,” Razafimanantsoa said.
The weekly obligatory savings plan acts as a buffer against hard times, which is especially important in this cyclone-prone country.
After Cyclone Haruna struck Madagascar in February, many of CECAM’s clients in Toliara, the regional capital of Atsimo-Andrefana Region, were left penniless.
“The first weeks, we didn’t give out any more loans, as we were afraid people would just use the money to eat. We are now helping some of the women who have lost their homes to reschedule their loans,” Razafimanantsoa said.
Prisca, 33, who did not provide her family name, from Belem, a district of Toliara, had entered her second credit cycle, and was using the capital to buy eggs from producers to sell at the market. “After I got the microcredit, I went from selling 100 eggs a day to selling up to 300. I could send the children to a private school and was able to buy some chickens,” she told IRIN.
But she was left homeless in the wake of the cyclone, and now lives in a displacement camp, sharing a tent with 10 others. “We left with only the clothes on our back. The first week we stayed in a school. Then the BNGRC [National Disaster Risk Reduction Office] came to give us these tents,” she said.
Prisca owes a 44,000 ariary ($20) debt to CECAM, and in the interim has enrolled in a cash-for-work project. “We’re working to rehabilitate the roads, earning 24,000 ariary ($11) a week. I want to pay the CECAM [debt] first, as that will enable me to take out a new loan. Then, I can earn money again and rebuild the house little by little. This credit is what takes care of our daily needs,” she said.
In the wake of the disaster, Sija, the fishmonger, was grateful for the loan’s savings requirement. “We pay back our loans from our savings,” she said. “After the cyclone in February, we had some problems paying, as there were no more goods to sell, so it was good I had saved up some money.”
The programmes are working.
Hanisoa Ravalison, 43, operates a small roadside restaurant selling sausages and simple meals in the village of Ambanitsena, about 26km east of Antananarivo, the capital. Following a visit by an OTIV agent, who recruits prospective clients, Ravalison decided to expand her business.
“At first, I borrowed money to renovate and enlarge the snack bar and to buy a fridge,” she told IRIN. “Now, I use money to buy more goods, so I can make more profit.”
Ravalison is in the tenth borrowing cycle of OTIV’s 12 cycles - which have an initial loan of 60,000 ariary ($27.50) and reach a loan ceiling of 440,000 ariary ($201).
“Before I received training, I just used the money I made to buy whatever was needed. Now, I separate personal expenses and money for the business. I also know the difference between sales and profits and know that I need to use part of the profits to make the company run.”
On a good day, her restaurant takes in 85,000 ariary ($39). “During holidays and festivals, we sell as many as 100kg of sausages,” she said.
Her husband has set up a second restaurant, and two of their five children work in the family businesses. Ravalison said her next business plan was to open a wholesale food business.
Liva Harininana Ramanatenasoa began a small business selling charcoal in Ambanitsena. “One day, an agent from OTIV came along and explained that, with microcredit, I could do better,” she told IRIN.
With the first loan, Ramanatenasoa bought more charcoal. “Without credit, I would be able to buy 10 bags maximum, but with credit, I could afford as many as 22, so I made a lot more profit,” she said.
Two years after first enrolling in the microcredit scheme, Ramanatenasoa used the profits from her charcoal business to buy the rights to a stone quarry for 200,000 ariary ($90). She now employs a staff of 14. Profits from the business have enabled her to build a house and put her children in school.
“If it wasn’t for the credit, I would have still been selling coal,” she said.