Apex Institutions in Microfinance

Fred D. Levy

Key Conclusions

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 capacity.

The full publications is available online
as a PDF file on the CGAP website

Return to the Documents Section

Hari Srinivas - hsrinivas@gdrc.org
Return to the Virtual Library on Microcredit