98. One means by which governments, international financial institutions and donors (and, in a few cases, private organizations) are trying to accelerate the expansion of microfinance services, is the establishment of wholesale financial institutions, organized and known variously as apexes, secondtier banks, national funds, etc.) to channel financial resources and, in varying degrees, technical assistance and overhead support to rmicrofinance retailers.<sup>22</sup> Some countries may have an apex institution (usually a national fund) wholesaling loans to local MFIs-typically credit-only MFIs. As a principal lender/investor, such an apex becomes a "virtual" supervisory agency: it must evaluate and monitor the soundness of the MFIs it lends to if it expects to have its loans repaid. For MFIs that fail to meet its standards, the sanction is denial of loans.

99. Suggestions have been made from time to time that apex institutions supervise deposit-taking MFIs, usually under a delegated supervision arrangement with the central bank authority. Such an arrangement might involve potential conflicts of interest: for instance, would an apex institution move expeditiously to close down an MFI that owed it money? The justification for these apex institutions often includes an expectation that they will catalyze significant quality improvements in the MFIs they fund, but few have been notably successful at this task.

_Lezal and Judicial Systems for Loan Contracts and Security Interest_ 100. For both Ghana and the Philippines, there are still major limitations in the legal definition, registration and repossession of collateral which stand in the way of providing not only greater access to financial services for poor owners of microenterprises, but also for legitimate MEIs to gain much needed access to commercial sources of funds in the formal banking and finance sector. Indonesia shares many of these limitations as well: one example of an obstacle to microfinance lending is Bank Indonesia's administrative regulation that borrowers must present to the lending bank a properly issued Business License (NPWP) for loans of Rp.25 million or more.

101. In Ghana and the Philippines -- as in many developing countries -- the secured transactions framework, viz., (i) creation (legal definition), (ii) perfection (registration), and (iii) execution (repossession) - has emerged as a substantial constraint to rural credit access. In the World Bank's experience in a number of countries confronted with these obstacles in the legal and judicial systems, Economic and Sector Work has been followed by technical assistance and lending for help in (a) drafting a comprehensive legal framework and (b) modernizing registry systems. Addressing these issues can be expected to increase access to credit by facilitating and legitimizing direct lending by banks and NBFIs for loans secured by moveable property, and by increased linkage transactions through the wholesale and retail system secured by inventory and accounts receivables.

102. Closely related to strengthening the legal and regulatory framework is improving the information base for formal commercial as well as rural MFIs lenders. To reduce risks and transaction costs, the design of rural microfinance projects should support steps to provide accurate and timely information regarding collateral, including aspects such as: (i) expansion, modernization and unification of public registries, particularly for land; (ii) improvement and modernization of titling and registration procedures; and (iii) promotion of credit bureaus and rating services particularly to provide better information about potential institutional borrowers such as SHGs and NGOs.

- 22 _Fred Levy, "Apex Institutions in Microfinance ", The World Bank: Washington, DC, June 12, 2000 (Draft)._

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