Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations
Written by: Elisabeth Rhyne, Ira W. Lieberman, Stephanie Dolan, and Brian Busch
The idea for this paper arose from the experience of microfinance investors reflecting on failed NGO transforÂ¬mations. Over the years, a number of investors have tried to invest in institutions that were in the midst of unÂ¬dergoing the process of transformation from an NGO to a regulated MFI, only to find the potential transaction unwind due to the inability of stakeholders to adequately align their interests. There are numerous examples of transforming microfinance institutions in which the alignment or misalignment between the personal interests of key decision makers and the long-term interests of the institution affected the ultimate outcome and future of the organization. Yet to date there has been little formal analysis or discussion of this issue. Without open discussion on how to treat personal interests, the issue is too often relegated to whispered conversations in back rooms. The resulting cost in terms of institutions not transformed or transformed in an unsatisfactory manner is not easy to see, but it may be quite significant.
The focus on aligning interests speaks to the human elements at play during the decision making about the future of transforming MFIs. The people involved in the transforming MFIâï¿½ï¿½ NGO general managers and board members, staff, potential investors, and even clientsâï¿½ï¿½have a personal stake in the outcome of the transformation.
This paper defines the challenges of aligning interests, studies cases and actual experiences from the industry, proposes tentative solutions and best practices, and, most importantly, initiates the dialogue for the industry as a whole.
Download a PDF file of this article: