With Transformation to Regulated MFI, What are the Models of Ownership that Protect Social Mission?

This paper was commissioned by the Microcredit Summit Campaign in 2006. The paper identifies the key areas that a microfinance institution (MFI) needs to consider in order to protect its social mission as it transforms into a regulated institution. They are as follows:

1. Knowing the right reason and understanding the mission. The paper states that:

• The organizational changes that transformation would require should support the organization's social mission;
• MFIs should enter the transformation process only because of - its practicality in expanding operations, its usefulness in generating resources and to complement its growing operations.

2. Knowing the ropes and expanding expertise. The paper addresses:

• the challenge of equipping the board of trustees and the paradigm shift that needs to take place in the mind-set of the stakeholders on the transition that the organization will be going through from non-profit to for-profit organization, from unregulated to regulated operations.

3. Knowing the fit and strengthening the structure. The paper deals with the structure within which the organization operates and states that:

• In the process of transformation, the original board of trustees should remain in control;
• The majority of directors of the new organization should come from the parent organization in order to protect its social mission, culture and discipline;
• The board of directors should be taught the skills that they need to govern a regulated financial institution.

The paper concludes that social mission has to be balanced with the goal of viability to help the poor become self-sufficient and self-reliant.