NGO Transformation

The paper discusses the reasons and advantages for NGOs to transform into regulated MFIs. It presents an institutional perspective to the process of transformation and identifies the role of the following issues in transformation decisions:

• Enhancing access to commercial capital;
• Reaching critical mass in terms of business operations and outreach;
• Enhancing the ability to attract savers through market led operations;
• Improving customer service through financially viable operations;
• Expanding outreach of the MFI.

Besides improving the service and reach of competing institutions the author identifies the benefits accruing from transformation:

• Improving accountability and governance;
• Utilizing resources effectively;
• Removing long-term distortions rising from subsidized credit supply to small and micro enterprises (SMEs).

The paper identifies considerations for transformation decisions:

• Integrating into formal finance systems and adjusting to the political and regulatory framework;
• Addressing institutional development by developing mission and selecting from ownership options;
• Developing the organization to enable it coping with the new operational environment.

The paper concludes that if the microfinance NGO transformations continue to demonstrate the levels of success and profitability to which they aspire, access to commercial sources of funds, including equity from private investors, is likely to increase.