Avoiding Apex Pitfalls: Local Initiatives Departments of Bosnia and Herzegovina

This paper details a successful microfinance apex fund in Bosnia and Herzegovina (BiH) - Local Initiative Department (LID). The fund was designed and managed by the World Bank with bilateral donor support from Italy, Switzerland, the Netherlands and Japan. The BiH project combined the immediate post-war goal of income support with the long-term goal of building a sustainable competitive MF sector.

The paper presents some of the common concerns associated with apex funds and the measures taken by LID to meet them:

• No viable MFI to fund, so who to and how to fund?
  • The in-country donor staff person had MF experience;
  • MF specialists were hired for all project missions;
  • Funding was conditional upon MFI's meeting the eligibility criteria.
• How to build a financially viable MFI?
  • Apex financing was structured to motivate MFIs to reach sustainability;
  • The BiH government turned a portion of loans into outright capital grant for MFIs;
  • LID MFIs did not immediately serve the poorest.
• How much to disburse?
  • There was no preset disbursement plan;
  • The BiH government and donors agreed to the dual goals.
• How to avoid political pressure?
  • Donors worked with apex staff and MFI leaders on the concept of building a national MF sector that was able to transcend political boundaries;
  • The client benefits of performance-based funding were explained to the stakeholders.