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The International Finance Corporation, the private sector arm of the World Bank Group, will provide joint risk-sharing with the Republic of Madagascar and two local banks to make loans available to owners of small and medium enterprises.

This is the first joint investment under the International Development Association/IFC Pilot Program for Micro, Small, and Medium Enterprises in Sub-Saharan Africa.

Henri Rabarijohn, IFC’s country manager for Madagascar, says, “This groundbreaking collaboration between IFC and IDA is a model for mobilising local currency financing in some of the poorest countries in Sub-Saharan Africa. It will benefit smaller businesses that typically cannot secure loans from local banks.”

James Bond, the World Bank’s country director, adds, “The IDA/IFC joint risk-sharing structure is promising, because it encourages local banks to prudently assume greater SME lending exposure.  This is critical in Madagascar, where small business owners rely on family, friends, or their own limited resources for most of their funding needs.”

According to Benjamin Davidson Andriamparany, Madagascar’s minister of economy, finance and budget, “The risk-sharing agreement we signed today demonstrates the parties “strong and long-term commitment to reduce poverty and boost economic growth in Madagascar by strengthening the private sector and giving it the means to develop. I believe that with this new partnership we will lift one of the main barriers to private sector financing: insufficient guarantees. Through our risk-sharing agreement, IFC, IDA, and the government of Madagascar will jointly invest US$12.5mn to cover 50% of loan and cash credit guarantees.”

Under two risk-sharing agreements, IFC will provide the local currency equivalent of US$6mn for credit risk coverage on the portfolios of new SME loans to be developed by BFV-Soci&eaute;té Générale and BNI-Crédit Lyonnais Madagascar, two local commercial banks.

The International Development Association, the part of the World Bank Group that provides concessionary lending to governments of the poorest countries, will fund the government of Madagascar’s share of the risk coverage through an IDA credit.

This credit will be provided under the Madagascar Integrated Growth Poles Project, a project aimed at fostering broad-based economic growth in Antananarivo-Antsirabe, Nosy Be, and Taolagnaro. IFC and IDA together will provide 50% of the risk coverage; the local banks will be responsible for the other 50%.

Under the IDA/IFC Madagascar pilot, the country’s government will use other funding from the IDA credit to support technical assistance programmes. The banks will receive advice on their SME lending operations, and business owners will receive training in preparing loan applications and financial concepts.

Eric Rakoto Andriantsilavo, national secretary of the Growth Poles Project in Madagascar’s ministry of the economy, says, “Access to finance, particularly for small and medium enterprises, is one of the main barriers to development. We expect the IDA/IFC programme will give banks greater flexibility to lend to SMEs.”

Marcel Lenguin, BFV-Soci&eaute;té Générale’s president director general, adds, “We are ready to get started, and we are confident that our collaboration with the IDA Growth Pole Program, IFC, and our technical assistance partner Shorebank will be successful.”

IFC has increased its global activity in Sub-Saharan Africa’s capital markets and has set ambitious investment and technical assistance objectives for the next four years. In particular, IFC is targeting SME financing through banking and other intermediaries, trade finance, microfinance, and housing finance.