Transformation

Transforming from a non-profit MFI into a for-profit organisationmakes affects MFI governance and its focus on SPM.

As well as putting systems in place to enable the board to maintain the right balance between financial and social performance, an MFI’s choice of investors will also affect how it manages social performance – in other words, you need to strike the right balance between benefits to clients and benefits to other stakeholders.

As NGOs transform into for-profit institutions and attract microfinance investors, the existing board can play a role in protecting and promoting its social mission (see FIE Bolivia's story below).

Protecting the social mission: FIE’s experience

When FIE made the transition from a non-profit NGO to a for-profit institution, it took a number of measures to protect its social mission:
 

  • The mission statement of the newly formed entity was the same as that of the NGO.
  • There was a long and careful search for potential stakeholders who accept FIE’s mission; many potential investors were eliminated because they did not satisfy this requirement.
  • The new entity retained the team of executives and staff who had successfully run the NGO.
  • Despite the prospective investor’s stated commitment to the mission, FIE insisted on maintaining majority control.

Before accepting a new investor or donor, the board and management should consider:

  • whether they have  already made a commitment to, or are open to taking on, the MFI’s social goals
  • whether they bring experience, resources and connections in terms of social performance
  • whether they demonstrate an understanding of and commitment to women’s issues, where that is a focus of activities (eg, empowering women, or providing linked (non-financial) services to women)
  • which social issues are important to them. You will get a good idea of their ‘real’ priorities from the questions they ask.

Even if the potential investor is committed to social performance, you should still ask other questions:

  • Do they already have a predetermined method to achieve social goals or other social agendas that may not fit your MFI’s mission, culture and available resources?
  • What are their ‘social returns’ expectations, and when do they expect these returns to be delivered?
  • How can you balance the number of requests and power this investor will have on the board with your MFI’s need to accomplish its social mission and day-to-day operations?
  • What is the investor’s exit strategy, and will that timeline allow you to achieve your social goals?
  • How does the investor balance financial and social performance goals? If financial goals are more important, how can you ensure that they are not just paying lip service to social performance?

Non-profit MFIs generally have more freedom to choose board members that represent the MFI’s values. For-profit MFIs have to balance the need for capital with the desire to bring in investors that reflect the MFI’s values.

Nonetheless, all MFIs should be careful when considering a new investor (or even donor) to avoid bringing in a stakeholder that could steer them away from their mission. Some MFIs (such as CARD) have actually declined donations and investments because they came from organisations whose interests were not aligned with their mission. On the other hand, some socially responsible investors, such as COSUDE(Bolivia), have acted as catalysts to raise the MFI’s awareness and commitment to SPM.

©2012 Imp-Act Consortium