This is a summary of a paper by Alex Silva, Mohammed Khaled and Karen Beshay; published by the International Finance Corporation (IFC); May 2018; 40 pages; available at:
https://www.ifc.org/wps/wcm/connect/1ffc3ec0-63ac-4426-863c-c7d1b8b0df46/ESOP-Transforming+22-5-2018.pdf?MOD=AJPERES
In March 2017, the International Finance Corporation (IFC), a unit of the World Bank Group, and Sanabel, a network of microfinance institutions (MFIs) in the Arab region, conducted a survey of 20 MFIs operating in eight Arab countries. The goal was to summarize their experiences with transformation, “the process whereby a credit-focused MFI (a project, NGO, not-for-profit or for-profit company owned by an NGO or by one owner) creates or becomes a for-profit, share-capital company with multiple shareholders…”. Each participating MFI had already transformed into a multi-shareholder MFI or was considering doing so.
The study indicates that the increased access to capital from private investors and the resultant expansion of financial service offerings helps MFIs reach more customers and create new sources of revenue. The authors also document improved operational efficiency as a result of economies of scale – in terms of both quantity and range of services provided.
Among the challenges that the authors identify are higher income taxes and conflicts between profit-making motives and social missions. The authors warn that transformed institutions sometimes “behave like a purely commercial lender, the same lenders that ignored low-income populations and made it necessary for the microfinance NGO to serve the underserved in the first place.”
By Nicholas Galimberti, Research Associate
Sources and Additional Resources
Sanabel
https://sanabelnetwork.org
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