Paper
Cost of Ownership in Microfinance Organizations
Is there a need to transform nonprofit organizations into shareholder firms?
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This article analyses the cost of ownership in microfinance organizations. It specifically compares the ownership cost of shareholders firms (SHFs), nonprofit organizations (NPOs) and cooperatives (COOPs). Paradoxically, most microfinance providers are NPOs or COOPs, while several policy papers advocate SHFs. The paper identifies several variables influencing ownership costs. It relates each of the variables to the microfinance industry and compares the ownership cost of SHFs, NPOs and COOPs. Analysis indicates that costs of microfinance market contracts are higher in SHFs, favoring NPOs and COOPs. In contrast, costs of ownership practice are higher in NPOs and COOPs, favoring SHFs. Study findings include:
- Proposed lower costs of ownership practice in SHFs provide strong support for this ownership type;
- NPOs and COOPs can more effectively mitigate costs of market contracts;
- Cost mitigation is highly relevant since most microfinance organizations operate in severely inefficient markets;
- Sector with a mix of different ownership types will probably best serve microfinance customers;
- NPOs and COOPs are still needed in severely imperfect markets, where most microfinance organizations operate.
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