NGO MFI Transformations: Ownership Issues

Nonprofit microfinance institutions (NGO MFIs) are increasingly transforming into for-profit companies, including regulated financial institutions. Transformations are typically driven by one or more of the following factors: an MFIs need for capital, its desire to offer services that may be limited to regulated financial institutions (such as savings), and new legislation or regulation requiring or permitting transformation. Transformations raise a host of issues that NGOs and their founders and funders need to address. Complicated issues involved in switching from an ownerless entity to an entity with owners are often not well understood before the transformation process is initiated. This brief reviews seven areas in which those embarking on a transformation should research and seek legal counsels advice.