There are many unforeseen issues microfinance institutions (MFIs) must deal with when they decide to drop the “not” in their “not-for-profit” status. The “Aligning Stakeholder Interests” project examines the issues that cause a misalignment of interests for stakeholders during this transformation process. The question of how to compensate directors and board members may not be as straightforward as it seems. MFI directors and board members often have personal stakes in a potential transformation, as well as a strong sense of ownership over the organization. Since they are in a position to affect whether the transformation happens, it is important to provide an appropriate incentive structure for them to participate in frank and transparent discussions about the needs of the institution.
Issues such as this can complicate, delay, or even derail transformation or merger efforts that may otherwise have expanded outreach and improved sustainability. The “Aligning Stakeholder Interest” project focuses on the human element at play during the decision making about the future of transforming MFIs.
This project is a partnership between the Center for Financial Inclusion’s Investing in Inclusive Finance team and Calmeadow. The Council of Microfinance Equity Funds (CMEF) has also played an important role in vetting the emerging good practices.
Since 2008, CFI and Calmeadow have collaborated on an exploration of governance during periods of institutional transition at MFIs, including transformation, mergers, and acquisitions. The Aligning Interests initiative worked closely with the investors and senior management at several MFIs that had undergone transformations to create case studies, and in 2009 published “Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations.” Following the paper’s publication, CFI and Calmeadow organized a series of roundtables and workshops to raise debate and discussion among industry players.
“What Do We Mean by ‘Aligning Interests’?” - CFI’s Investing in Inclusive Finance Program Manager, Deborah Drake, clarifies what we mean by aligned interests and how it matters for institutions in the microfinance sector.