Findings                                                                                           Good
                                                                                                      Infobrief
                                                                                                              Practice


           Africa Region Number 66 July 2001
                                        ·                        ·
 Findings Infobriefs reports on Good Practice in ongoing operational, economic and sector work carried out by the World
Bank and its member governments in the Africa Region. It is published monthly by the Knowledge and Learning Center
on behalf of the Region.
 The views expressed in Findings are those of the author/s and should not be attributed to the World Bank Group.


 Madagascar:PrivateEnterpriseDevelopment

     The objectives of the Financial Sector and Private Enterprise Development ( APEX) project which began in
   1990 and spanned ten years were as follows: (i) complement the governments ongoing restructuring efforts
   of the economy through provision of funds for investment and reconstitution of permanent working capital
   in industry and all other productive sectors; (ii) help, in coordination with the IMF and the Public Sector
   Adjustment project, to improve the efficiency of the financial sector, including expanded term resource
   mobilization; further interest rate liberalization and deepening the competition in the financial sector through
   a number of monetary policy instrument changes; (iii) strengthen institutions operating in the financial and
   small and medium enterprise ( SME ) support sector; and (iv) expand employment opportunities.



Impact on the ground


 The line of credit was able to provide sixty-one medium- and long-term loans totaling $33 million to forty-nine
 enterprises throughout Madagascar. Of these forty-nine, twenty-five were new enterprises.
 Repayment rates for loans to enterprises under the APEX line of credit remained high  by project completion,
 only five loans representing 3.46 percent of outstanding loan portfolio were in arrears.
 The system of bank-by-bank credit ceilings was modified in 1994, and subsequently abolished to promote
 competition among banks.
 Auctions were introduced to enable the Central Bank to manage liquidity in the banking system.
 The Central Bank improved the availability of information. Since 1990, the results of the Treasury bill auctions
 have been made immediately available to participants; from 1998, these have been published in the press.
 Two public banks, which accounted for some 60 percent of bank deposits, were privatized in 1998 and 1999.
 Privatization has reduced the fiscal impact of possible future bank failures.
 The improved management of public banks and state divestiture have contributed to increased efficiency in
 the system as reflected in reduced intermediation margins and a downward pressure on interest rates.
 The communication and motivation campaign to make the APEX line of credit better known to potential
 beneficiaries was carried out; however, the prevailing unstable economic conditions limited its impact.
 Three entrepreneurs received scholarships to study abroad; 175 entrepreneurs received in-country training
 to improve their knowledge of accounting and management information systems.




The Good Practice Infobrief series is edited by P.C. Mohan, Rm. J5-055, Knowledge and Learning Center, World Bank, 1818 H Street NW,
Washington D.C., 20433. Tel. (202) 473-4114; e-mail: pmohan@worldbank.org

Lessons learned
 Flexibility in project design and in responding to changing country circumstances are crucial to achieving
 positive outcomes. Building policy reform conditions into an investment loan proved a reasonable proposition
 in this instance.
 Long-term commitment by the government and key actors such as the Central Bank and the Ministry of
 Finance are key to responding to changing circumstances. Thus, changes in monetary policy instruments and
 of monetary policy could be introduced even in a period of economic instability.
 Continued dialogue between the Bank and the IMF leading to complementary interventions, is critical for
 financial sector reform. Other key donors also need to participate actively  as did the European Union and
 the Government of France, in this case, with regard to privatization.
 Providing adequate funds for staff retrenchment associated with the Bank privatization program was a
 significant measure.




 This article is sourced from the concerned Implementation Completion Report and the OEDs Evaluation
Summary. For more information, please contact Yvonne D. Jones: Yjones@worldbank.org




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