In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.


In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

Financial System in Madagascar—Structure Performance and Risks1

Madagascar is coming out of a five-year political crisis. It is important to do a stock-taking of the health of financial system, given the fragile environment. Overall, the financial system is starting from a small base, and risks, while emerging, are still contained. Nonetheless, reforms to support the development of the financial sector are critical, as it is currently not in a position to support economic diversification and growth, given limited financial access. A larger financial system would also enhance the impact of public policies—both fiscal and monetary—and ensure that access to credit becomes an engine of growth. Upgrading supervision, enforcing regulations more forcefully, and establishing a crisis resolution framework are all needed to ensure financial stability is maintained.

A. Overview of the Structure of the Financial System

1. The financial system in Madagascar is composed predominantly of the banking sector, making up 80 percent of the financial system. It is composed of 11 commercial banks which are concentrated on Antananarivo. The banking sector is essentially foreign owned, dominated by French and Mauritian banks, but in recent times joined by other banking groups from China (1) and Africa (2). The top 4 banks account for 86 percent of assets and collect 88 percent of deposits. There are five non-deposit taking financial establishments. In addition, 31 microfinance institutions (MFIs) have emerged in recent years—four of which are considered large—that supply limited financial services to low-income households, notably in rural areas.

2. Insurance companies, although still in an early stage of development, account for most of the remainder of the domestic financial system. There are three public and two private sector insurance companies. Life insurance is still in its early days, while non-life insurance has been growing, notably due to the rise of car ownership. Madagascar does not have a stock market, and the bond market has one active issuer in the form of government paper (there has only been one other issuer of a bond in 2012 so far).

3. Only about 6 percent of the population has a bank account, and this may be overstated, as some individuals hold multiple accounts. This is a quarter of the rate found in lower income countries in SSA. Bank deposits account for 18.9 percent of GDP. The interbank market is small and illiquid, while leasing is in its infancy. There is no deposit insurance system in place. A credit registry was put in place at the central bank in 2009, which while operational, suffers from insufficient compliance by banks, in particular with respect to timely submission of information as well as completeness of the information transmitted.

The Banking Sector

4. The banking sector has continued its gradual expansion in recent years. The political crisis over the last five years has, however, led to a change in behavior. It created a highly risk averse lending culture in most banks, focused on collateral lending and solid prime players. (This risk-aversion is compounded by the presence of foreign banks, which while they bring advantages—they improve governance, introduce technology to improve financial intermediation, and exploit economies of scale—but by relying on hard, as opposed to soft information, are less likely to lend to riskier borrowers). Most banks’ core business consists in collecting deposits, lending to bigger firms, including subsidiaries of multinationals or holding government securities. There is emerging anecdotal evidence of some change in this behavior, with banks starting to lend to riskier clients, but from a very low base. Credit to the economy is mainly focused on service sector, with limited credit to the primary and secondary sectors (Figure 1).

Figure 1.
Figure 1.

Madagascar: Evolution of Financial Sector

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Source: Central Bank of Madagascar.

5. While lack of data does not permit the conduct of stress tests, discussions with the authorities and banks/MFIs suggest that there are pockets of vulnerabilities. The system is most likely vulnerable to (i) sector risks, including default by the largest individual exposures (ii) overall credit risk (iii) default risk of a public entity (while the government accumulated budgetary arrears in recent years, these were not directly to the banking system). The large net open position of banks (Table 2) suggests that FX risk requires some monitoring. Not all banks respect the basic minimum regulatory requirements, and it appears that recent (smaller) entrants have profitability problems, requiring some monitoring (Table). Liquidity risks and interest risks are likely to have a limited impact on most banks, given that banks are mostly highly liquid and maturity mismatch between assets and liabilities are likely to be small, as lending tends to be for short-term projects. This is also corroborated by the Financial Soundness Indicator (FSI) tables (Table 2). With the usual caveats—FSIs are backward looking, pro-cyclical, and hide important variations among banks—Malagasy banks appear on average to be well capitalized, profitable and liquid, with asset quality being the main concern.

Table 1:

Madagascar: Financial System Structure, end-2013

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Source: Central Bank of Madagascar.(*) includes Caisse d’Epargne de Madagascar, but not CNAPS (Caisse Nationale de Prévoyance Sociale) and other public financial institutions due to lack of data
Table 2:

Madagascar: Non-Respect of Regulatory Norms

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Source: Central Bank of Madagascar.
Table 3:

Financial Sector Indicators, 2009–2014

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Source: Central Bank of Madagascar.


6. With the growth rate of the microfinance sector having been high over recent years, it appears in a more fragile position overall compared to the banking system. With assets of less than 2 percent of GDP, the MFI sector is much smaller than the banking system in absolute size, but plays an important role in the underserved rural regions of the country. The number of registered MFIs has reached 31, up from 25 in 2009, with deposits and loans growing respectively at compound annual growth rates of 32 percent and 29 percent between 2009 and 2012 according to the MFI Association. The steady growth over recent years—is a reflection of the disengagement of the banking sector from riskier lending, which MFIs are starting to fill. This includes lending to the more volatile agricultural sector in particular.

7. Although the existing legal and regulatory framework governing the microfinance sector is in line with many other countries, weak implementation explains why almost half of MFIs do not meet some of the prudential requirements. While stress testing the sector was not possible due to lack of data, there is anecdotal evidence that several MFIs may be in a difficult position. The failure of an MFI recently—which has led to the loss of savings of its 100,000 members—in the context of a lack of deposit insurance system has harmed many individuals who have lost their deposits. The main source of the vulnerability of the sector appears to be governance problems, which must be addressed. The difficulty of processing and collecting data on MFIs and lack of action to freeze the activities of these entities once they are failing is problematic, as it leads to the continuation of poorly performing MFIs.


8. The insurance sector has grown at a double digit growth rate in the last few years, but from a small base. Non-life insurance has seen a particularly strong growth, largely because of the significant increase in matriculated cars. About 3/4 of the revenues from the industry emanate from non-life insurance, with the remainder from life insurance. The penetration level of life insurance within the population is negligible (less than 1 percent of the population), given the low income per capita of the general population, with only few people having the means to buy life insurance.

9. At present, an assessment of health of the insurance sector cannot be made due to lack of data. One constraint facing insurance companies is asset shortages, the difficulty to invest their premiums beyond real estate and government for lack of investible assets, creating concentration risks in their portfolio. The variation in provisioning between the five insurance companies appears high (not reported), warranting a closer look at the sector, and a reinforcement of the supervisor at the Ministry of Finance—both in terms of number of staff and in the upgrading of skills.

B. Systemic Risk in Madagascar

10. At this juncture, systemic risk2 in Madagascar is likely to be contained. No economic sector—sovereign, household, corporations or financial sector—appears to be highly leveraged, based on available data (Box 2). All but one bank are foreign owned (change in ownership occurred in 2014, and is not always fully reflected in the tables, which often are only available for end-2013), mostly by large international groups, and finance mainly short-term trade finance. Time-series systemic risk is likely to be small at present, as the relatively modest financial system is unable to provide a large credit impulse to significantly impact GDP growth (correlation is small). The small size of the banking system, and limited leverage, explain this finding. In addition, there have not been significant capital in and out-flows that are often at the heart of time-series systemic risk.

Definition of Systemic Risk

Systemic risk is defined as any threat of disruption to financial services that is caused by an impairment of all or parts of the financial system and that has the potential to have serious negative consequences for the real economy. It is a negative externality that occurs when a bank failure, market seizure or breakdown of the infrastructure (e.g. payment system) can cause serious adverse implications for market participants. Systemic risk is decomposed into time-series and cross-sectional risk (see Borio, 2009):

  • Time-series dimension: The build-up of risk over time interacts with the macroeconomic cycle. Financial institutions and borrowers take on large amounts of leverage during the upswing, to become excessively risk averse in the downswing. The amplification of the boom and bust cycle in the supply of credit (and by extension asset prices) is often damaging to the real economy.

  • Cross-section dimension: The growing size and complexity of the financial system raises interconnectedness and common exposure that may increase contagion when problems arise. As a result, the failure of one institution—large in size or highly interconnected—can threaten the whole financial system.

11. Similarly, most forms of cross-sectional systemic risk appear to be benign, though this would need to be confirmed with more refined data. Interconnection among banks is small—given the limited interbank market. Risks arising from common exposure are, however, larger with many banks often having similar customers (e.g. government and large corporations). In addition, the interconnection between banks and other financial entities—notably microfinance institutions—merits close monitoring, as banks are often owners of, or refinance microfinance companies, implying that problems in microfinance companies can reverberate on banks. It is not clear how banks are connected to non-deposit taking financial institutions or the insurance sector, which again requires monitoring.

12. The largest bank in Madagascar is probably too-big-to fail (TBTF), suggesting an important form of cross-sectional risk. A TBTF bank is one whose demise would create havoc for the rest of the financial system or the financial system and the economy because of its size, interconnectedness, complexity, international linkages and/or the lack of available substitutes for the service it provides. Société Générale and BNP Paribas, which have subsidiaries in Madagascar, have been designed as Systemic International Financial Institutions by the Financial Stability Board. This is not the case of the parents of other foreign owned subsidiaries, or the domestically-owned bank.

Leverage in Madagascar

While there are data weaknesses in Madagascar, most indicators suggest that leverage levels in Madagascar are low to moderate. The mirror image of a low credit-to-GDP ratio is low levels of formal indebtedness in the economy.

Government: although rising, government debt remains manageable at about 35 percent of GDP, in part because of its high level of concessionality. Nonetheless, the low government tax revenue levels, and implicit/contingent liabilities, the leverage of the sovereign balance sheet needs to be carefully monitored to avoid getting into difficulties.

Banks: They finance themselves essentially out of deposits, and don’t issue bonds, keeping leverage levels contained. In addition, banks as a whole appear profitable and liquid, creating an additional buffer of security. There is important variability among banks, however, with this positive picture not necessarily holding for all of them.

Households: The household sector is essentially dual in nature, with only some well-off households having access to finance. As bank lending takes place mostly against guarantees (not future cash flows), only affluent households can borrow. Leverage levels therefore are low. The large incidence of poverty (80 percent of the population), the large level of rural and informal sector also mean that most households cannot get formal credit. While some households have increasing exposure to microcredit, data constraints prevent providing a close indication of the debt incurred by these households.

Corporate Sector: Only a few large corporations—composed of the traditional foreign companies and some local ones—have strong balance sheet and can borrow, largely for short-term trade finance. The vast majority of other companies—mostly small ones—cannot lever up, due to lack of access to credit.

C. Benchmarking Madagascar’s Financial Sector

13. A benchmarking exercise allows an assessment of Madagascar’s financial sector performance with respect to depth, breath, access and efficiency. For each key financial sector indicator, a structural benchmark is estimated based on the country’s economic and structural characteristics.3 The difference between the observed value, and the benchmark provides an indication of whether there is scope for further policy action—in case of a negative difference—or whether a country’s reforms have been positive—in case of a positive gap. The analysis is carried out for data from 1995–2013, with benchmark countries composed of Low-Income Countries (LICs).

14. Depth: Madagascar is below the benchmark for private credit to GDP. Given the political crisis, the banking sector has not deepened much in recent years. Despite its relative smallness, bank intermediation, measured by private credit to deposit ratio, is in line with the structural benchmark, suggesting that banks on-lend their deposits at rates similes to benchmark countries. Similarly, the insurance sector, measured by insurance assets to GDP, is in line with expectation: although low in absolute terms, the ratio of insurance sector assets and insurance premiums to GDP are similar to their benchmark values (Figure 2). With the absence of stock and fixed income market, Madagascar also underperforms in related benchmarks (not reported here) for capital market activities.

Figure 2:
Figure 2:

Selected Indicators on Financial Sector Depth in Madagascar

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Source: FinStats.

15. Breadth: The picture for Madagascar is varied in terms of the range of products, markets and providers. The level of competition in the banking system—proxied by the asset concentration of the three largest banks and the interest rate margin—is close to the benchmark (Figure 3). The ratio of credit to the public sector as a share of GDP is also in line with benchmarks, though it has increased in recent years. The insurance sector outperforms the benchmark, in particular life insurance (though we saw earlier that it is small in abolute terms), with non-life insurance close to the benchmark.

Figure 3:
Figure 3:

Selected Indicators of Breadth and Access in Madagascar

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Source: FinStats.

16. Access: Access to banks is below the benchmark, suggesting that there is a lot of room to have more inclusive banking system. Branches per 100,000 adults—a useful indicator of access—illustrate that Madagascar is below its benchmark, and that there is room to increase financial inclusion significantly (Figure 3).

17. Efficiency and Profitability: These metrics are both broadly in line with structural characteristics for the banking sector, as measured by cost-to-income ratio (Figure 4). Overhead costs, while historically above benchmarks, have recently converged on the benchmark, implying efficiency gains. This is also reflected in the Return on Equity, which has moved towards the benchmark. The one exception is the lending-deposit spread, which is significantly higher in Madagascar compared to the relevant benchmarks, implying that competition—at least on pricing—is not as high as in benchmark countries. Lack of data on NPLs in FinStats for Madagascar implies that we cannot benchmark the country (as NPL definitions must be homogenized with those of benchmark countries, one cannot simply use the NPLs of the BCM).

Figure 4:
Figure 4:

Selected Indicators of Efficiency and Profitability in Madagascar

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Source: FinStats.

18. Although statistical benchmarking shows that Madagascar is not lagging significantly in terms of financial sector development, there is scope for further deepening. Some of the constraints to further deepening are discussed in the section “Obstacles to further deepening”. While beyond the scope of this paper, an agenda for further analysis would be to better understand what drives differences relative to benchmark countries, and which reforms should be undertaken.

Mobile Banking in Madagascar

Like in other parts of SSA, mobile banking has started to take off. Mobile banking in East Africa has greatly improved access to finance, by reducing transactions costs, particularly in remote rural areas, turning more households into viable customers. In Madagascar, there are more individuals with mobile phone accounts than with actual banking accounts. With the number of mobile phone subscriptions having increased significantly, the active use of mobile banking has not been as strong, with the initial volume growth of transactions having, as least during the transition, plateaued.


Mobile Phone Users in Madagascar, 2010-2013

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Mobile banking in Madagascar goes beyond money transfers, and is helped by a legal framework that is being revised to comply with best practices. Mobile banking is not simply used to transfer money, but also to deposit money, to pay suppliers, to buy goods and services, payment of wages, and of course receiving transfers from overseas. Legislation has been already established, and is being amended, to better align the institutional norms.


Volume of Mobile Transactions

(Billion of Ariary)

Citation: IMF Staff Country Reports 2015, 025; 10.5089/9781498353069.002.A005

Source:Central Bank of Madagascar

D. Consequences of Lack of Further Financial Deepening

Private Sector: Dealing with Volatility and Enhancing Growth

19. Shallow financial markets make it more difficult for firms and household to access financial services, leading to the following constraints:

  • Higher volatility: One of the key functions of banks—to enable economic agents to smooth consumption across time—is not performed in underdeveloped banking systems. Shocks have to be fully absorbed by households’ existing assets, and when they are insufficient, adjustment is immediate, leading to destitution in extreme cases. Shallow banking systems tend to in fact create pro-cyclical financing conditions, providing private entities with credit in good times, but cutting back in downturns, enhancing volatility further. Financial sector development can thereby help reduce liquidity constraints, thereby attenuating volatility.

  • Lower growth: Financial development affects economic growth by facilitating the mobilization of savings to finance investment and contributing to better allocation of resources. According to the doing business survey, access to credit is a binding constraint on growth in Madagascar.

Country Ranking of Doing Business Indicators for Madagascar, 2015

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Source: World Bank, 2014

Fiscal Policy: Removing financing constraints, and enabling counter-cyclical policies

20. Constraints on fiscal policy stemming from a shallow financial system are multiple, not always visible, and include:

  • Liquidity (and interest rate) risk: With a large part of domestic debt issued at relatively short maturities—the government is not able to issue large amounts of bonds with a maturity in excess of one year—liquidity risks faced by the government are significant. Rolling over its debt is always a risk in such an environment, resorting to financing itself through undesirable means such as arrears. Short maturities also expose sovereigns to significant interest rate risks.

  • Fiscal cost: A deeper financial market, by creating more liquidity and allowing for economies of scale in debt issuance (reducing average cost of issuance by utilizing the same infrastructure), may reduce the marginal cost of borrowing to the sovereign. These costs tend to be high presently, particularly for longer maturities.

  • Scope for countercyclical policy: Madagascar’s economy is susceptible to shocks. This puts a premium on fiscal flexibility. A deeper financial system would give the government more scope to run countercyclical policies in the event of a shock, potentially reducing the need for large fiscal adjustment, which would particularly affect the part of the population that lives close to the subsistence level and has itself limited access to credit. It would also help keep up the pace of execution of investment projects, which if delayed would generally result in higher fiscal costs (beyond lost output in the medium term).

  • Financing public investment. A shallow financial system limits the ability of the government to finance long-term investment with large economic and/or social rates of return. This is particularly pertinent for Madagascar, given the need for timely infrastructure investments, including in energy and transportation.

Monetary Policy: Removing constraints to enhance monetary policy effectiveness

21. The shallowness of the financial system is the most likely reason why the transmission mechanism of monetary policy is not fully effective in Madagascar. At this stage, given the structural breaks brought about by regular political crises, it is difficult to carry out an econometric analysis of the impact of the various monetary channels, especially with the interest rate not being used actively as a policy lever. It can probably be argued that most of the transmission mechanisms are unlikely to function strongly in Madagascar. Research on monetary transmission in low-income countries (Mishra, Montiel, and Spilimbergo, 2012) showed that for all the channels to be effective, a country should have a strong institutional setup, an independent central bank, a high degree of capital mobility, a floating exchange rate, and well-functioning interbank, government securities, equities, and real estate markets.

22. Although some of these preconditions for an efficient transmission mechanism are met in Madagascar (e.g. floating exchange rate), others are constrained by the institutional setup (e.g. limited capital mobility, central bank not fully independent). The low level of development of financial markets is an impediment for monetary policy effectiveness. The negligible interbank market explains why the bank credit channel is not fully effective. At the same time, there is virtually no secondary market for government securities, which does not allow the interest rate channel to fully perform its transmission function. Finally, there is no stock exchange, which impedes the functioning of the asset price channel. There are several additional factors hindering the effectiveness of the transmission mechanism of monetary policy:

  • Persistent excess liquidity: The banking system is segmented—for instance some banks are mainly present to provide services to foreign companies, not to do business with local companies—including with regard to the distribution of liquidity. The reluctance of banks to trade liquidity means that liquidity needs of illiquid banks have to be met by injections from the Central Bank. In addition, banks also tend to hold large precautionary excess reserves due to weaknesses with the payments system (e.g., remote branches may need to hold large cash balances due to transportation problems). Such a context makes it very hard for the central bank to focus on overall liquidity management. Developing the interbank market and mopping up excess liquidity will be preconditions for a more effective credit channel.4

  • Credit rationing: Imperfect information is an important issue in Madagascar, in particular for smaller firms and for the sizable informal sector. When a financial institution raises its lending rates following a change in policy rates, it may increase the riskiness of new lending by only encouraging risky borrowers to take on more credit (adverse selection). If unwilling to accept higher risk, the bank may ultimately decide to keep its lending rates unchanged, muting the impact of monetary policy decisions.

  • Limited bank competition: A number of factors, such as high average interest rates and profit margins and segmentation, suggest that competition in the banking market may not be very strong. In such circumstances, monetary policy changes might be partly and temporarily absorbed by changes in profitability.

E. Obstacles to Further Deepening

23. The development of the financial system should be pursued forcefully in a way that preserves financial stability. Financial systems play a crucial role in facilitating growth and helping reduce vulnerability and poverty. From this perspective, further financial development is highly desirable in a low-income country like Madagascar. However, financial systems can also be a source of volatility and crisis, particularly when they become large and/or highly interconnected. There is large body of evidence that indicates that financial crises are usually preceded by rapid growth in financial aggregates. Since Madagascar’s financial system remains relatively small and interconnectedness is limited, these risks are presently low, though they require monitoring. The main obstacles to financial sector development are well known (see also Demirgüç-Kunt et al. 2008):

  • Informational asymmetries: Lack of information on borrowers, due to the limited size of the formal sector, the limited availability of audited company statements, and the limited information content of the credit registry at the central bank, increases adverse selection and moral hazard issues, and ultimately leads to credit rationing. This problem also affects microfinance institutions (MFIs), which tend to lend to some of the banks’ customers too. Information asymmetries are also an issue for the development of the interbank market.

  • Business and judicial environment: A key issue is the absence of formalized property rights in large parts of the country (both rural and urban), which increases the difficulty of using land as collateral in lending. Moreover, the judicial process tends to be costly and slow, with some recent judgments viewed by lenders as motivated by social and political considerations rather than legal merit. This inability to recoup losses at a reasonable cost, through collateral initially pledged, discourages lending further, particular to new segments.

  • Political Instability: The repeated political instability in the country creates a risky environment in which banks are reluctant to lend longer-term, and prefer lending against collateral, making it hard for most individuals (who lack assets) to borrow.

  • Insecurity: With ongoing insecurity in parts of the country, banks are reluctant to spread into areas where the security of the branches and staff is not guaranteed. The costs of opening branches in far away spots outweigh the benefits.

  • Skills. The quality of human capital is critical for banks and MFIs, as it provides the necessary risk-management expertise and the ability to design and sell the products that customers need. The lack of appropriate skills may explain why in recent years some MFIs that moved from dealing with microenterprises to dealing with small to medium-sized enterprises (SMEs) saw their profitability decrease. Banks may face similar challenges moving from larger enterprises to SMEs.

  • Corruption: The perceived corruption, as measured by the corruption perception index such as Transparency International, is very high (127th out of 177 countries), and has in fact increased in recent years according to these indices. As long as corruption hampers investment projects, projects will largely be selected based on individuals or connections, rather than on the merit of an expected rate of return.

F. Conclusions

24. The financial system in Madagascar, like in many other low-income countries (LICs), is dominated by the banking sector. While banks are overall healthy, there are pockets of vulnerabilities, particularly among the less established players. A large number of MFIs supply limited financial services targeting lower income households, helping raise overall access to the financial system. Insurance companies account for most of the remainder of the domestic financial system. There is no equity market, and the bond market is a source of funding only for the government. Benchmarking exercises suggests that overall, the financial system in Madagascar is not significantly out of the norm, given the structural characteristics of the country.

25. The banking system, while stable, has pockets of vulnerabilities, with lending concentration and asset quality being the main risks, while the situation of the microfinance sector requires careful monitoring. FSIs suggest that most banks are on average adequately capitalized, profitable, and liquid. Financial depth has increased in recent years and is broadly in line with the country’s structural characteristics. However, there is scope for further deepening, which would facilitate the conduct of fiscal policy, make it easier to deal with volatility, and foster investment and growth. The microfinance sector in particular requires careful watching, especially the governance of these institutions, with the recent closure of one institution being a clear warning sign.

26. Micro-prudential regulation of banks and microfinance institutions could be enhanced and supervision strengthened. This is already happening, with the reinforcement of staff at the Commission de la Supervision Bancaire et Financiere (CBSF). Many of the lacunas that were discussed in the Madagascar FSAP (2005) and many analyses and recommendations made at the time remain valid. Improving cross-border supervision and signing MoUs with foreign supervisor is an important step forward. Regulatory compliance should be improved further. In addition, good supervision requires not just a sound regulatory framework—which exists to a large extent in Madagascar already—but also the will and ability to act, which is currently less perceptible. The ability to act must exist both in law and in practice. Supervisors need adequate resources, a skilled and sufficient staff, as well as accountability to balance operational independence.

27. The authorities are encouraged to develop better statistics, and a deeper holistic view of the financial system and systemic risk. The central bank set up a financial stability unit in January 2013, whose responsibility it is to provide macro-prudential oversight of the financial system and to identify the main systemic risks through developing early warning system. Developing this expertise is crucial, as the financial system is gaining in complexity, becoming more interconnected (between banks and non-banks). As the global crisis has illustrated, having a system-wide perspective helps the supervisor by complementing his micro-prudential approach by taking account of externalities that build up in the system. Such a function should be developed further. The forthcoming, self-assessed Financial Stability Report is one vehicle through which such an analysis could progress.

28. Another area for further work is the financial crisis prevention and resolution framework. The fact that technically insolvent banks have been allowed to continue operations for a while, or that it takes years to close down banks, may reflect weaknesses in the bank resolution framework. Developing the financial crisis prevention system, and Special Resolution Regimes for the closure of banks, are important tasks ahead.


  • Beck, Thorsten, Edward Al-Hussainy, Asli Demirgüç-Kunt and Bilal Husnain Zia, 2013, “Financial Access Database” (Washington DC: World Bank).

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  • Borio, Claudio, 2009, “Implementing the Macroprudential Approach to Financial Regulation and Supervision”, Bank of France Financial Stability Review, September,

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  • Demirgüç-Kunt, Asli, Thorsten Beck, and Patrick Honohan, 2008, “Finance for All?: Policies and Pitfalls in Expanding Access”, (Washington DC: World Bank).

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  • Mishra, Prachi, Peter Montiel and Antonio Spilimbergo, 2012. “Monetary Transmission in Low-Income Countries: Effectiveness and Policy ImplicationsIMF Economic Review, Vol. 60 (2), pp. 270302.

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Prepared by Patrick Imam.


See Box 1 for definition.


The structural benchmarks are calculated based on FinStats data-set from the World Bank. For a large set of countries, each financial sector indicator is regressed on a set of structural characteristics, such as GDP per capita, population size, density, age-dependency ratio, country specific dummies and year fixed-effects (see Beck et al., 2013).


In addition, an added reason for high excess liquidity is the need to ease the financing of the budget deficit since late 2013—due to insufficient tax revenue and late arrival of budgetary support—that has led BCM to avoid mopping up excess liquidity.

Republic of Madagascar: Selected Issues
Author: International Monetary Fund. African Dept.