56727 BRIEF Apexes: An Important Source of Local Funding Apexes are an important source of local funding for microfinance--and even more so since the global financial crisis. Well over US$2 billion1 per year of public money is being disbursed globally to microfinance through apex funds or local wholesale facilities.2 The funds are then disbursed by apexes to microfinance institutions (MFIs) mostly as subsidized loans, but occasionally as grants.3 The funding provided by apexes to MFIs is almost as much as the disbursements that donors and investors made to the entire microfinance sector in 2007, which was about US$2.5 billion.4 These large sums demonstrate the importance of apexes as vehicles to channel public money into microfinance. In February 2009 CGAP completed a study to Apexes Defined map apexes that identified 76 apexes around An apex is a pool of funds constituted domestically the world. Apexes are especially prevalent to lend to MFIs that, in turn, disburse loans to low- in Latin America and South Asia (69 percent income people. and 29 percent, respectively, of total apex Apexes are funded with public money, but they take disbursements in 2007), and the number of various institutional forms, such as development apexes in Africa has increased significantly in banks, nongovernmental organizations, donor programs, private commercial banks, and special the past five years, with eight apexes created government or donor programs. between 2003 and 2008. Data are available from 47 of these apexes, Who is funding apexes which disbursed US$1.8 billion in 2006 and and why? US$2.3 billion in 2007. In 2007, the average amount disbursed among the largest 15 apexes Apexes are financed with public funds from was US$151 million each. national governments or with funds from donors from developed countries. A majority of apexes Most apex funds still in existence today were are funded by both international public funders established in the 1990s and 2000s. PKSF, the (mostly bilateral and multilateral agencies, as well-known, large Bangladeshi wholesale fund, well as development finance institutions [DFIs]) was launched in 1990. Since then there has been and national governments. Nearly a quarter of a steady stream of new funds, with 11 having all apexes, however, are exclusively funded by been created in the last three years. host governments.5 The top five international 1 Figures in this Brief come from a CGAP study conducted in collaboration with Enterprising Solution from August 2008 to February 2009. 2 Apexes are also sometimes called "second floor structures" in Latin America. 3 Technical assistance (TA) funding provided by apexes is relatively negligible as a percent of total disbursements. In 2006 it was 2.9 percent of total disbursements; in 2007, it was 1.9 percent. The largest TA funds were disbursed in South Asia and Latin America. 4 See CGAP Funder Survey (http://www.cgap.org/p/site/c/template.rc/1.26.1426/) 5 In a few exceptional cases, microfinance investment vehicles (MIVs) also provided some funding--for more information on MIVs see http://www.cgap.org/gm/document-1.9.38570/CGAPBrief_MIV.pdf March 2010 2 assistance to smaller MFIs or geographic Sources of Funding areas that are not reached by commercial investors. Increased relevance after global crisis Only host government 23% The global crisis has made apexes all the more Donors and attractive for funders of microfinance. As a host government source of local currency funding, apexes-- 51% unlike international investors that offer two- Only donors thirds of their debt in hard currency--do not 26% expose MFIs to foreign exchange rate risks. Apexes also proved to be stable and resilient partners that continued to fund MFIs during the crisis alongside DFIs. CGAP research on government and donor responses to the financial crisis indicates that increasing funding funders of apexes are KfW, the World Bank, the for apexes has been one of the most significant Inter-American Development Bank, IFAD, and ways to provide support for microfinance during the European Union. the global crisis.6 Governments in Malaysia, Cambodia, and India all injected liquidity Interest in apexes is high among international into the microfinance sector in their countries funders and governments. Both see it as a way through apexes.7 to increase access to finance and improve the economic livelihood and quality of life of poor But performance is a question people. For governments, apexes provide a way to signal commitment to inclusive finance Despite the significant amounts of funding and inject significant amounts of liquidity into channeled through apexes, little is known about a large number of MFIs, which are usually how and where the funds flow into microfinance ignored by banks and commercial investors. markets, or how they perform. There is little International public funders often see apexes public information available on apexes, and as a means to jump-start the microfinance almost no information on the performance sector and coordinate their funding. Apexes of retail institutions in their portfolios. The also offer them the opportunity to move a lot evaluations that do exist have not provided clear of funding quickly without individual screening guidance to funders and governments on how and selection of retailers. Funders also see it to structure apexes, or indeed whether they as a way to provide both funding and technical should be used at all. 6 See results of this survey conducted by CGAP in August 2009, http://www.cgap.org/gm/document-1.9.40985/ Government%20responses%20to%20the%20Global%20Crisis%20%20Novemeber%202009.pdf 7 During the crisis, the Government of India injected US$1.5 billion into SIDBI for small and medium-size enterprises and microfinance. 3 become less relevant as financial markets A Special Case: The National Bank for Agricultural and Rural Development developed and commercial money became (NABARD), India available to MFIs. Disbursement pressure has Established in 1982, NABARD is a state bank in India. also made it difficult for apex managers to Its mission is to promote sustainable and equitable agriculture and rural development. Funded by the maintain quality standards, especially in cases Government of India and by the Reserve Bank of where there were insufficient numbers of viable India, NABARD is the largest apex institution in MFIs in which apexes could invest. Finally, some the world, disbursing over US$20 billion in 2007 alone. Because of its unique status and size, it has apexes have hampered the management of the been excluded from the overall figures used in this MFIs that they funded by imposing interest paper. rate ceilings or lending methodologies on participating MFIs (as has occurred in Sri Lanka, Apexes have played a useful role in providing and Cambodia). wholesale funding for microfinance in start-up and nascent financial sector environments (e.g., Several governments and funders are currently Afghanistan, Bangladesh, Bosnia, and Pakistan), wondering how to create the next generation where commercial funding was unavailable. They of apexes.8 Because of their size and growing have also provided much needed liquidity when importance as a mechanism to channel public the financial crisis squeezed commercial sources funding into microfinance, it is important for of funding. governments and funders to pay attention to their transparency and efficiency. CGAP plans But apexes face several challenges, including to further analyze and document the necessary governance issues sometimes due to political conditions to make apexes more efficient funding interventions. In some cases, apexes have vehicles for funders and host governments. 8 In May 2008, a group of public and private funders met with apexes in Delhi to discuss their respective roles. See http://www.cgap.org/gm/document-1.9.3201/South%20Asia%20Funders%20Meeting%20Recommendations%20 FINAL%20version.pdf March 2010 All CGAP publications are available on the Largest Apexes* CGAP Web site at www.cgap.org. Fund Country Portfolio Portfolio Disbursed 2006 Disbursed 2007 CGAP 1818 H Street, NW FINDETER Colombia $536,272,658 $613,323,269 MSN P3-300 NAFIN Mexico $417,415,215 $408,142,726 Washington, DC 20433 USA PKSF Bangladesh $190,770,000 $295,790,000 Tél: 202-473-9594 SIDBI India $78,335,319 $169,503,820 Fax: 202-522-3744 CFN Ecuador $98,000,000 $109,528,000 Email: BMS Mali ­ $101,442,513 cgap@worldbank.org BANCOLDEX Colombia $66,497,810 $97,730,704 © CGAP, 2010 PPAF Pakistan $68,512,486 $96,907,995 MISFA Afghanistan $45,950,252 $54,286,048 BTS Tunisia $39,000,000 $43,000,000 FNI Nicaragua $35,338,137 $40,877,378 Funda-Pro Bolivia $32,600,000 $34,800,000 FFSA Kazakhstan ­ $31,932,320 DBZ Zambia $13,582,723 $23,818,551 Total $1,622,274,600 $2,121,083,324 * The largest apexes are based on 2007 disbursed portfolio. CGAP regional experts identified the largest funds in their regions. AUTHORS Eric Duflos and Mayada El-Zoghbi