Do Apex Models Make Sense for Microfinance?
This article argues the case of setting up national apex funds to finance microfinance. The article reviews the Inter-American Development Bank's (IDB) Microenterprise Global Credit Program (MG Program) - the largest wholesale (or apex) microfinance program in Latin America - that provides financing to commercial banks and other intermediary financial institutions (IFIs) to facilitate their entry into the microenterprise market.
The article states that the IDB's MG programs support the development and strengthening of the microenterprise sector through:
- Increased credit access;
- Institutional development of financial institutions' (FIs) lending to microenterprises;
- Strengthened policy or environmental framework;
- Improved access for non-regulated microcredit institutions to program resources.
Further, the article identifies the factors that led to the success of MG programs:
- A large, concentrated microenterprise sector;
- An incipient microfinance industry, with a model MFI and two other committed FIs;
- A facilitating regulatory environment;
- An effective executing agency with authority, independence, transparency and adequate resources;
- Efficient procedures for IFI selection, monitoring, disbursement and repayment;
- Strict, transparent and relevant selection criteria and performance monitoring targets;
- Proper pricing of resources;
- Flexibility in setting interest rates to borrowing microenterprises;
- High quality, targeted technical assistance.
Finally, the article asserts that wholesale microfinance can be a good second generation MFI upgrading tool, but such programs should be supported by an appropriate long-term exit plan.
