Investing through APEX: foreign funding, local knowledge

  • Charline JAN, Pamiga
  • Yasir ASHFAQ, Pakistan Microfinance Investment Company (PMIC)
  • Dominique LESAFFRE, SIDI
  • Paul KATENDE, Stromme Microfinance East Africa Ltd.


Charline JAN, from Pamiga, started the session with CGAP's definition of an APEX: "a second-tier or wholesale
organisation that channels funding to multiple MFIs in a single country or region". With the limited research in
this area, she hoped the session would provide insights by combining highlights from a recent study by SIDI and F3E with inputs by two APEX institutions.

Dominique LESAFFRE explained that SIDI invests in APEX institutions to support the development of national / regional microfinance sectors. The study aimed to improve understanding of APEXes in terms of scope and impact, to foster dialogue and to promote them as valuable players in inclusive finance. The study focused on six Latin American and African organisations with highly different institutional profiles. He stressed that an APEX doesn't have a defined form or structure. Building a robust APEX requires considerations around its legal status and institutional profile. In addition, its purpose should be defined: the scope of financial & non-financial services, the governance structure, the business model in relation to competitors, and its role in social

In terms of legal form, Lesaffre stressed the need to address the regulatory context, social and financial goals, for partners to be financed and to attract potential sources of funding. In terms of products, APEXes can address partner needs such as SPM, capacity building, lobbying or developing new product categories. However, the starting point is to enhance access to MFIs with low access to funds. Finding funding and developing HR resources to do so adequately is a challenge due to limited funder appetite. As regards governance, he stressed that the governance structure and board composition define its strategic direction. Who to include - beneficiaries, industry stakeholders or investors - requires careful consideration. The organisation also needs to ensure its DNA through legal documents and partner / shareholder agreements.

Sustainability of the business model needs to be ensured by addressing constraints and opportunities in the national context and developing income-generating activities based on thorough market research on where it can add value compared to other funding and service providers. Finally, Lesaffre looked at SPM. Here APEX bodies need to understand partner needs to identify indicators and develop suitable services to the national context. He concluded with the added value of APEXes: their proximity and local knowledge, their visibility and the economies of scale they offer.

Yasir ASHFAQ showed the close link between the history of microfinance in Pakistan and the evolution of the Pakistan Microfinance Investment Company (PMIC). After the establishment of the Pakistan Poverty Alleviation Fund (PPAF) and the Microfinance Institutions Ordinance in the early 2000s, the sector grew in terms of players, products and regulation. To better answer to the needs of a growing sector and enhance financial inclusion, PPAF's financial arm was incorporated as a separate, licenced financial institution, PMIC. PMIC is now a for-profit organisation, with PPAF, DFID and KfW as shareholders. Its aim is to meet liquidity needs of MFIs in Pakistan, engage in new product design and sector development, while improving the microfinance eco­system. He explained how this change fits the stages of funding in the sector: moving from highly subsidized funding and operational grants, to market-priced financing according to strict criteria.

He then addressed Lesaffre's key questions. Based on the development stage of the sector and the need to retain a double bottom line, they are now structured as a for-profit investment finance company. This provides better access to financial markets and a broad array of funding instruments, while working towards their long-term vision of financial inclusion. They differentiate themselves from commercial lenders by going beyond financial products, also working on R&D to introduce innovative products for financial inclusion. In addition, they add value by building partnerships and alliances for such innovations.

In terms of governance, Ashfaq cautioned against including beneficiaries into the board, as it can lead to conflicts of interest, for example when disclosing beneficiary information during loan approval processes. It is vital to ensure that board members are credible and experienced, and to spend sufficient attention to legal documents and stakeholder agreements to guard the mission. Social performance is part of the organisation's DNA and is integrated in its financial covenants and performance tracking systems. Ashfaq then focused on PMIC's transition process, pointing out challenges such as convincing regulators and changing the mindsets within the organisation and the sector. As benefits of investing through APEX bodies, he mentioned leveraging their market understanding and strong links with local stakeholders, using them as one-stop solution to invest in Pakistan's microfinance sector, and reaching out to poorer beneficiaries of smaller MFIs.

Paul KATENDE explained the structure of Stromme Microfinance East Africa Ltd. (SMF EA), which is a spin-off of the NGO Stromme Foundation (SF). SF's work was instrumental in growing the microfinance sector in East Africa. SMF was incorporated in Uganda in 2004 to professionalise SF's microfinance operations, attract new shareholders (SIDI and CORDAID) and improve operational systems, loan evaluation processes and documentation. It provides sustainable, market responsive financial services and capacity building to financial providers in Uganda, Kenya and Tanzania to enhance access to financial services to the poor. Katende then touched upon governance, which is supported by strategic plans and documents, a board composed of shareholders and independent members bringing specific skills. A key focus is to ensure staff has actual experience in microfinance.

SMF offers wholesale lending services (for business, housing, development and agriculture) and capacity building and technical support. Products are developed to meet market needs and contribute to improve livelihoods, housing, food security and job creation. SMF's value compared to MIVs lies in its on- and off-site technical support activities in terms of product development and SPM, for example. SMF can also play a role in terms of lobby and advocacy, benchmarking and supporting the application of best practice and coordination with other funders and donors. They are currently diversifying into SME and producer group organisations with finance needs beyond the capacity of their members. As success factors, Katende mentioned a strong board and staff, going beyond financial service delivery, strategic alliances, and a thorough understanding of the local context. In terms of challenges, he mentioned fundraising issues (high rates, lack of appetite to fund APEXes and capacity building activities) and a lack of donor coordination. He further mentioned that they will now be regulated under Tier-IV Microfinance Institutions and Money lenders Act 2016.


The first point of discussion was whether to work on product development with some MFIs, given the risk of MFIs not sharing product information with competitors, or for the broad sector, with the risk of nobody taking the product up. Ashfaq differentiated between situations where clients ask for specific product development support, versus new product areas where the APEX needs to play a role in creating demand, in R&D efforts and creating a platform with non-financial players.

In this sense, the discussion continued by looking at the role of APEX bodies. Not only as a lender-of-last-resort to MFIs, but also in addressing market failures, for example untapped regions, clients or product categories. Moreover, APEXes can support smaller or niche MFIs which further the financial inclusion agenda.