Strengthening Microfinance Supervision in Madagascar

Project Development Objective (PDO)

This project aims to support the Central Bank of Madagascar (CBM) in its response to the recent microfinance crisis and in improving the legal, regulatory, and institutional capacity needed for adequate supervision of the microfinance sector.


The Malagasy microfinance sector has grown rapidly in recent years. The microfinance sector is supervised by the Commission de Supervision Bancaire et Financière (Commission for Banking and Financial Supervision, or CSBF) in the Banque Centrale de Madagascar (Central Bank of Madagascar, or BCM). The existing crisis in the microfinance sector has highlighted the insufficient supervisory framework and inadequate procedures of the sector as well as the failure to implement resources such as on- and off-site supervision manuals, liquidation procedures, and a resolution framework. CSBF will need to address these insufficient resources before it can support its on- and off-site supervision and enforcement efforts and help stabilize the sector. 

Furthermore, the legal and regulatory framework governing the microfinance sector and supervision activities in Madagascar dates back to 2005 and needs to be amended to reflect current international standards and recent developments.


In close collaboration with the CSBF, the technical assistance project includes the following activities: 

Modernization of the legal and regulatory framework for microfinance and introduction of a legal framework for resolution of microfinance institutions (MFIs)
The project team is reviewing the existing legal and regulatory framework for microfinance to highlight needed changes and to introduce a resolution mechanism. The team is also drafting laws and related regulations to modernize the legal and regulatory framework for microfinance. 

Strengthening supervisory capacity of the CSBF
The team is developing an action plan that addresses staffing, additional technical assistance, training needs, and costs to fix the existing supervisory and resolution procedures and to enhance microfinance sector supervision. Additionally, the team is developing a protocol for CSBF to follow if a microfinance crisis arises. The project team is also drafting updated supervisory manuals, guidelines, and directives for microfinance supervision, including a methodology (a) to determine a MFIs systemic importance and (b) that allows the BCM to evaluate whether the failure of an MFI is likely to expose the remainder of the microfinance sector and the overall financial system to contagion risks.  

Expected Outcomes

The expected outcomes of the project include the following:

1.  Improving the legal and regulatory framework for microfinance and resolution in the
     microfinance sector

2.  Enhancing the microfinance supervisory capacity for on- and off-site supervision of MFIs by CSBF,
     including a capacity to implement effective resolution and liquidation procedures

3.  Improving and sustaining the supervisory capacity of CSBF staff

4.  A sound and stable microfinance sector; and strengthened financial inclusion