Apex Institutions in Microfinance
Fred D. Levy
CGAP publication on APEX INSTITUTIONS IN MICROFINANCE by Fred D. Levy, reviews the experience of national microfinance apexes - wholesale mechanisms that channel funds, with or without supporting
technical services - to retail microfinance institutions in a single country or
integrated market. Here is a summary of its conclusions:
- Apexes probably expand the supply of resources available for unlicensed
microfinance institutions (MFIs), at least in the short term.
- However, microfinance development in most countries is held back more by a
shortage of strong microfinance institutions (MFIs) at the retail level than by
a shortage of wholesale funding.
- Planning documents for apexes typically overestimate the number of retail MFIs
that will be strong enough to channel the apex's funds.
- Apexes for unlicensed microfinance institutions (such as NGOs) are most likely
to be useful when they are created in response to the existence of a critical
mass of competent retail MFIs, as was the case with PKSF in Bangladesh.
- Apexes that fund licensed institutions such as banks and finance companies
have seldom been successful in encouraging these institutions to continue
microlending when the apex money runs out. The only exceptions to this pattern
seem to be where the apex's funds were linked to day-to-day technical assistance
from a group that (a) had a track record of running sustainable microfinance
itself, and (b) was able to provide the retail institution with a fairly
complete "turnkey" package of information and management systems. The number of
such technical assistance providers is very small at present.
- Apexes have not been successful in building bridges between MFIs and
commercial funding sources. Indeed, the incentive to seek commercial funds is
weakened by the availability of easier funding from the apex.
- It may not be reasonable to require that apexes be financially sustainable
themselves (after imputing a charge for the opportunity cost of their capital).
- Little evidence was found that apexes play a useful role in coordinating among
donors and harmonizing their requirements.
- Management is key to an apex's effectiveness. The actual availability of
managers with the necessary technical and personal qualifications should not be
assumed, but rather should be investigated carefully at the planning stage.
- The most important function of apex management is probably the selection of
MFIs to be funded. Because the number of qualified MFIs is usually limited,
managers have trouble applying proper selection criteria when they are faced
with political pressure or pressure to disburse large amounts quickly.
- In the apex's supervision of the MFIs it funds, focusing on institutional
performance targets that are few in number, precisely defined, and seriously
enforced is probably more effective than requiring massive reporting on detailed
uses of funds.
- Political interference is a common problem in apexes, despite assurances to
the contrary at the planning stage. The best protection will usually be to keep
state participation in the governance of the apex to the minimum level possible.
- Donors and governments tend to create unrealistic disbursement pressure for
apexes. It would usually be preferable for initial funding of an apex to be
modest, with larger amounts added later in response to demonstrated demand and
The full publications is available online
as a PDF file on the CGAP website
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