AFRICA-MIDDLE AFRICA-MIDDLE EASTEAST

REGIONAL MICROCREDIT REGIONAL MICROCREDIT SUMMITSUMMIT

Nairobi, Kenya, April 7-10, 2010Nairobi, Kenya, April 7-10, 2010

WHAT IS NEEDED TO WHAT IS NEEDED TO HAVE WHOLESALE HAVE WHOLESALE

MICROFINANCE FUNDS MICROFINANCE FUNDS WORK IN AFRICA AND WORK IN AFRICA AND THE MIDDLE-EAST?THE MIDDLE-EAST?

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Quazi Mesbahuddin AhmedQuazi Mesbahuddin AhmedManaging DirectorManaging Director

Palli Karma-Sahayak Foundation (PKSF)Palli Karma-Sahayak Foundation (PKSF)(Rural Employment Support-Fund)(Rural Employment Support-Fund)

• Despite microfinance institutions (MFIs) in Africa

recording strong growth and encouraging

performance during the past decades, they

continue to face many challenges and will need to

seek new cost-effective models to scale up.

• Assuming that the role of public policy in countries

with existing or potential MFIs is to create

conditions for the emergence of sustainable,

profitable MFIs, one can also surmise that wholesale

microfinance funds are devices introduced by

donors and/or governments in order to address

problems that may not be resolved by markets

and/or to pursue goals that may not be entirely

achieved by market forces alone.

ROLE OF APEX FUNDS IN SCALING UP OF ROLE OF APEX FUNDS IN SCALING UP OF MICROFINANCE IN AFRICA AND THE MICROFINANCE IN AFRICA AND THE

MIDDLE-EASTMIDDLE-EAST

Removing market imperfections, both in the demand and supply sides, apparently

remains a difficult and long-term task.• On the demand front, building financial

and human capital of the poor, specially of the hardcore-poor, is also an arduous and long-term task. This notion requires admission on all hands.

• On the supply side, for meeting the challenges emanating from the poor people, there is an obvious need for a new set of financial institutions i.e MFIs. The process of their institutionalization is a long-term venture.

APEX FUNDS IN SCALING UP OF MICROFINANCEAPEX FUNDS IN SCALING UP OF MICROFINANCE

• Recognizing that the country context and socio-economic circumstances will be different around the world, apex organizations for MFIs need to be created as permanent institutions from the very beginning. CGAP has shown the reality that wholesale funds, which were originally designed as temporary funding mechanisms, became permanent entities in most cases.

• When MFIs can grow up and be able to borrow at commercial rates, apex funds can also charge same rates from them. Meanwhile, much water would flow through a Kenyan river when poor people would be capable of handling larger financial leverages and the MFIs had learnt to continuously battle with the trade-off between social and efficiency goals.

APEX FUNDS IN SCALING UP OF MICROFINANCE APEX FUNDS IN SCALING UP OF MICROFINANCE (Contd.)(Contd.)

• CREATING A CONDUCIVE ENVIRONMENT FOR

EMERGENCE OF SUSTAINABLE* MFIS

• PROMOTING THE CONCEPT OF ‘DEVELOPMENT

MICROCREDIT’

• WORKING AS KEY INSTITUTIONAL DEVELOPMENT

AGENTS FOR MFIs

• SERVING AS CATALYST IN INTEGRATING

DEVELOPMENT PROGRAMS WITH MFP FOR

MAKING AN EFFECTIVE DENT IN POVERTY

REDUCTION

* Includes both financial and institutional

sustainability

APEX FUNDS IN SCALING UP OF APEX FUNDS IN SCALING UP OF MICROFINANCE MICROFINANCE (Contd.)(Contd.)

With the above premise, we indicate the following With the above premise, we indicate the following roles for an apex:roles for an apex:

• INSTITUTION BUILDING APPROACH

• FINANCING THE MFPs OF MFIs LIKE QUASI-

EQUITY PARTICIPANTS

• PERFORMANCE-BASED FINANCING

• SOCIALLY MOTIVATED FINACING APPROACH IN

PLACE OF COMMERCIAL FINANCING

STRATEGIES OF APEX FUNDSSTRATEGIES OF APEX FUNDS

• FINANANCING THE MFPs OF MFIs ON A CONTINUOUS BASIS TILL THEY REACH THE TARGETED OUTREACH

• FINANCING THE INSTITUTIONAL DEVELOPMENT ACTIVITIES OF MFIs

• SETTING UP PERFORMANCE STANDARDS FOR MFIs

• MONITORING AND SUPERVISION OF MFPS AND ID ACTIVITIES OF MFIs

• ENCOURAGING MFIS IN DIVERSIFYING FINANCIAL SERVICES FOR THE POOR

• ENCOURAGING AND ENABLING THE MFIs IN INTEGRATING PRO-POOR ACTIVITIES WITH THEIR MFPs

FUNCTIONS OF APEX FUNDSFUNCTIONS OF APEX FUNDS

• APEXE FUNDS WOULD BE BUSY IN LAYING THE FOUNDATIONS OF SUSTAINABLE MFIs IN THEIR EARLY STAGE OF DEVELOPMENT;

• APEX FUNDS WOULD BE BUSY IN

BUILDING AWARENESS ABOUT THE CONCEPT OF DEVELOPMENT

MICROFINANCE AMONG MFIs AND THE SOCIAL ENTREPRENEURS

FORMULATING POLICIES AND SYSTEMS FOR MFIS IMPARTING TRAINING ON FUNDAMENTALS OF

MICROFINANCE MANAGEMENT SETTING THE PERFORMANCE STANDARDS SCREENING APPLICATIONS OF POTENTIAL MFIs FINANCING MFPs OF MFIs FOR INCREASING HORIZONTAL OUTREACH OF MFIs

ROLE OF APEX FUNDS IN COUNTRIES HAVING ROLE OF APEX FUNDS IN COUNTRIES HAVING MICROFINANCE SECTOR IN A NASCENT STAGEMICROFINANCE SECTOR IN A NASCENT STAGE

• APEX FUNDS WOULD BECOME BUSIER IN RESOLVING SECOND GENERATION CHALLENGES OF A MATURED MICROFINANCE SECTOR

• APEX FUNDS WOULD BE BUSY

ENHANCING CAPACITY OF MFIs TO SERVE DIFFERENT SEGMENTS OF HETEROGENEOUS POOR POPULATION

INTEGRATING SYNERGIES OF NON-FINACIAL SERVICES WITH MFP

INSTITUTIONAL DEVELOPMENT OF MFIs WITH SPECIAL FOCUS ON GOVERNANCE AND POLICY ADVOCACY

PROMOTING ICT BASED MF FOR DIVERSIFYING RANGE OF SERVICES

AND REDUCTION IN COST OF SERVICES INFUSING NET FINANCIAL RESOURCES TO TARGETED CLIENTS

FOR

ENBLING THEM TO MAKE REQUIRED INVESTMENTS FOR GRADUATING OUT OF POVERTY  

ROLE OF APEX FUNDS IN COUNTRIES HAVING ROLE OF APEX FUNDS IN COUNTRIES HAVING MICROFINANCE SECTOR IN MATURED STAGEMICROFINANCE SECTOR IN MATURED STAGE

• PROMOTION OF ‘DEVELOPMENT MICROFINANCE’

• CONTINUATION OF INTEGRATING OF PRO-POOR

DEVELOPMENT PROGRAMS WITH MFPs

• ENHANCING CAPACITIES OF MFIs TO SWITCH FROM A

SINGLE TARGETED MFP TO MORE INCLUSIVE FINANCING

PROGRAMS

• ENSURING PERFORMANCE-BASED CONTINUOUS

FINANCING OF MFPs OF MFIs

• CREATION OF CONDUCIVE ENVIRONMENT FOR

DIVERSIFICATION OF FINANCIAL SERVICES AND

REDUCTION OF COST OF OPERATIONS THROUGH

APPROPRIATE USE OF ICT

• INFUSION OF NET FINANCIAL RESOURCES TO THE

TARGETED POOR

GUIDING PRINCIPLES FOR NEXTGUIDING PRINCIPLES FOR NEXT GENERATION APEXESGENERATION APEXES

•TWO-TIER STRUCTURE OF GOVERNANCE: GOVERNING BODY AND THE GENERAL BODY TO BE FORMED. MEMBERS OF THE GOVERNING BODY TO BE COOPTED FROM GENERAL BODY. GOVERNING BODY TO BE ACCOUNTABLE TO GENERAL BODY

•PRESENCE OF DONOR/GOVERNMENT STAFF IN THE GOVERNING BODY OF APEX FUNDS MIGHT BE AVOIDED TO EVADE POSSIBLE DILUTION IN SENSE OF OWNERSHIP

•PRESENCE OF GOVERNMENT NOMINATED MEMBERS INCLUDING THE CHAIRMAN OF THE BOARD WOULD LIKELY MAKE THE APEX MORE CREDIBLE AND SUSTAINABLE. THEY SHOULD NOT BE GOVERNMENT SERVANTS THOUGH

•MEMBERS OF THE BOARD MUST HAVE PROVEN GOOD TRACK RECORD IN THE FIELD OF PRO-POOR DEVELOPMENT ACTIVITIES, MICROFINANCE AND INSTITUTIONAL DEVELOPMENT

•TENURE OF MEMBERSHIP SHOULD BE ‘ADEQUATE’ FOR ENSURING STABLE POLICY-MAKING

•CEO TO BE APPOINTED BY THE GOVERNING BOARD

GOVERNANCE STRUCTURE OF APEX FUNDSGOVERNANCE STRUCTURE OF APEX FUNDS

Thank YouThank You