How do you recognize or quantify the time and effort that a non-profit’s founder has poured into an organization? Do you reward a non-profit’s board members for their countless hours donated to shaping the institution’s mission, and if so, how? What role does the staff have in determining the success of an organization? What skills and qualities are necessary in a manager, and what should be done if his skills set no longer meets the needs of an institution?

Such questions normally circulate beneath the surface at any operating non-profit. However, they truly come to light during periods of institutional transition, for example, during transformation to a for-profit or a merger of organizations. As these questions are often intensely personal, they have the potential to become, on the one hand, a bitter point of contention or, on the other, an opportunity for frank discussion and collaboration.

“Aligning Stakeholder Interests in NGO Transformations: Emerging Good Practices,” the new report released by  the Council of Microfinance Equity Funds (CMEF), continues the difficult process of getting to the heart of these questions. The report, which represents the consensus of the majority of CMEF members, was drawn largely from investors’ direct experiences and the practices that they employ and/or have witnessed over the course of man institutional transformations and transitions.

“These guidelines will be useful for both investor and NGO executives alike,” said CMEF Coordinator Deborah Drake. “The issues addressed in this document have served as significant stumbling blocks to transformations and mergers in the past, and this is one of the first times that the challenge is being recognized and discussed in an open, transparent manner.”

The USAID Speakers Corner online discussion featuring Elisabeth Rhyne and Deborah Drake starts tomorrow. They will be exploring the challenges presented by microfinance institutions during periods of transition. Participants are encouraged to share their own experiences, questions, and comments.

To learn more and register for the discussion, click here »

During periods of transition at MFIs – whether it be transformations, mergers, or acquisitions – institutional stakeholders often encounter challenges with organizational governance and the alignment (or misalignment) of interests among founders, management, board members, staff, donors, and investors. Such issues not only complicate an already-difficult transition, but also sometimes delay or even derail the entire process.

The Center’s Elisabeth Rhyne and Deborah Drake will be hosting a USAID Speakers Corner online discussion from April 13-15 to explore the challenges presented by transitions. Participants are encouraged to share their own experiences, questions, and comments.

To learn more and register for the discussion, click here »

To read learn more about aligning interests during MFI transformations, check out the Center’s recent paper »

Personal interests are often at stake as microfinance institutions transform from nonprofit to commercial entities. In its latest interview, Microfinance Gateway speaks with Center for Financial Inclusion Managing Director Elisabeth Rhyne on the new paper “Aligning Interests” that challenges the microfinance industry to openly discuss these human stumbling blocks.

Click here for the interview >

Click here for the Aligning Interests paper >

In nearly every transformation of a non-profit MFI over the past decade, the board members and senior managers have recognized and aligned the personal interests of powerful stakeholders in the NGO, typically using some sort of financial incentive. However, this process of recognizing and aligning interests has been neither transparent, nor based on any type of industry standard – precisely because there has been no comprehensive documentation of this information or discussion of this complex, sensitive, and often personal issue. In failing to openly address this topic, institutions can further complicate an already-difficult transition process, delaying or even derailing it. There are many examples of potential transformations and mergers that never came to pass, at least in part because the misalignment of stakeholders’ interests proved to be a key stumbling block. Other times, the lack of transparency can create an image problem that can stain the reputation of an otherwise successful institution preparing to scale up its mission and outreach.

Earlier this month, a group of nearly forty microfinance practitioners and investors met in San Salvador to discuss the recently-published the paper Aligning Interests, sponsored by the Center and Calmeadow. With the support of REDCAMIF, the roundtable discussion brought together board members and general managers from many of Central America’s most prominent microfinance institutions, along with a handful of microfinance investors in the region. In addition, Luis Noel Alfaro, professor at INCAE Business School, was on hand to guide the discussion about one of the most difficult issues facing transforming MFIs.

During the day-long roundtable, Prof. Alfaro led in-depth examinations of two real industry cases, followed by a panel discussion with Center and Calmeadow members who worked on the paper. The event solicited frank and pointed opinions from the practitioners who attended. Many discussed other cases they knew well and keenly described how the technical and political aspects of a MFI transformation interact and evolve. The participants touched on the many and diverse interests that motivate the stakeholders in non-profit MFIs, far beyond just monetary concerns. Finally, they made clear that during the often long and grueling transformation process, properly aligned interests alone cannot make a transformation successful; however, misaligned interests can cause it to fail.

The day ended on a positive note, with the participants sharing ideas about concrete solutions to improve the process of discussing and aligning stakeholder interests before and after transformation. The quality of the discussion emphasized how important it is for the industry to begin talking about these issues openly and transparently, and reinforced the significant challenges raised by the paper.

Going forward, the Center and Calmeadow will host a number of small roundtable events this fall to foster further awareness and discussion of this issue. We will also have the opportunity to reach a larger audience through two upcoming panels, at the IDB Foromic in Peru (Oct 2) and the SEEP Conference in DC (November 5). Through these efforts, Center-Calmeadow team hopes that the industry will begin to build consensus, which could ultimately lead to the definition of good practices around the alignment of stakeholder incentives.