Micro Success Story? Transformation of Nongovernment Organizations into Regulated Financial Institutions

This paper draws attention to increasing number of non-governmental organizations (NGOs) that are transforming into regulated financial institutions (RFIs) since the first such transformation of the Bolivian NGO Fundacion para la Promocion y el Desarrollo de la Microempresa into BancoSol in 1992.

The paper labels this situation as ironic in the backdrop of increasing involvement of NGOs in providing micro-credit services to poor clients underserved by formal financial institutions. This paper aims to:

• Inform and improve the understanding by microfinance stakeholders of the nature of the transformation of NGOs into RFIs;
• Enrich and encourage discussions on the issues among stakeholders and potential investors;
• Help transformed institutions to improve their operations and outreach;
• Enable NGOs considering transformation to make more informed decisions to ensure their sustainability and social mission.

Further, this study examines the ownership structure, expectations, and achievements of transformed institutions in Africa, Asia and Latin America. Finally, the paper states:

• Most transformed MFIs have achieved encouraging results in four fundamental areas:
  • An ownership structure with shareholders to maintain a balance between social mission and profitability/ sustainability;
  • Increased access to loanable funds from commercial sources;
  • Broader range of services including voluntary deposit services;
  • Increased breadth and depth of outreach.
• Improved access to commercial/semi-commercial funding and higher public deposits has helped in the growth of transformed institutions;
• Transformed institutions have expanded their scale and scope of operations due to access to more resources.