Transformation: The Challenges

Presentation at "Expanding Financial Access in Africa Conference," April 19, 2010
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This presentation examines the major changes that occur when a credit-focused MFI creates or becomes a regulated, deposit-taking financial intermediary.

Transformation entails a change in the MFI’s regulatory status, legal form, capital structure and products. The two major types of transformation include that from an NGO to a for-profit entity and from an unregulated to a regulated institution. Both types of transformation result in more professionalism, greater oversight, ability to attract more lenders and investors, change in ownership and growth. Transformation:

  • Implies ceding to a broader group of stakeholders
  • Facilitates an expanded product offering and broadens the institution’s client base;
  • Leads to significant changes in human resource requirements;
  • Requires compliance with regulatory requirements;
  • Adds significant costs to operations.

Finally, transformation is a tough choice for an MFI to make. Although it provides the advantages of access to new capital sources, deposits for clients and growth, it also brings with it the taxation of profits, additional costs, compliance with regulatory requirements and information technology challenges.