Financial Inclusion and Climate Resilience for Southern Madagascar Farmers

The GIZ PRADA Phase II project operates in very remote and fragile areas of Madagascar namely Atsimo Atsinanana, Anosy and Androy. Being located in the Southern part of the island, these regions are severely prone to climate change related disasters and hazards. PRADA II provides farmers with smart farming methods for eight agricultural value chains, and AFC is in charge of designing the mechanism that give them access to suitable and adapted financial services. These are key factors for building lasting resilience to climate risks.

Following a study conducted by our team in May 2023, Village Savings and Loans Associations (VSLAs) are recognized to play an important role in offering farmers convenient solutions. In fact, VSLAs can reach beyond the usual boundaries that neither MFIs nor banks can cover.

Recognizing that trust is crucial for establishing a robust VSLA, we have tailored a strategy to focus on farmers who have received training from GIZ PRADA II initiatives at locations near farmers' field schools and climate-change field schools. These farmers are readily amenable to group formation, as they share common geographical proximity, similar crop cultivation practices, identical socio-demographic attributes, and comparable exposure to climate-related hazards.

Over the coming months, an initial cohort of 1,400 farmers is expected to join 54 VSLAs that will be created by AFC. Notably, approximately 73% of these farmers are women. Situated in regions where acquiring the necessary documentation for conventional credit applications or bank account openings is a mandatory, pricey, and time-consuming process, VSLAs provide them with a practical and inclusive solution.

The path forward is already well-defined. AFC will leverage its expertise to connect these VSLAs to MFIs and banks through tailored banking linkage initiatives. Customized loan products, such as solidarity group loans, will be developed, and flexible savings account products will be piloted for both groups and individuals. These efforts will drive further financial inclusion for the farmers. VSLAs will also serve as a gateway for cross-selling weather-based index insurance products. Continuous financial education, another of our initiatives, will play a crucial role in empowering these farmers through a holistic approach. AFC has started to involve mobile money operators for an opportunity to leverage the digital tool for a higher penetration rate, cost-effective solutions.

Despite the remote and challenging conditions in the southern regions of Madagascar, the GIZ PRADA Phase II project and AFC are working to empower farmers with access to suitable financial services and resilience-building strategies. By leveraging the effectiveness of VSLAs and implementing a comprehensive approach that includes tailored banking linkage initiatives, customized loan products, weather-based index insurance, and ongoing financial education, AFC is making significant strides in enhancing the financial inclusion and climate resilience of these vulnerable communities.

For further information please contact Benedetta.Ferraro [at] afci.de