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LIFT Financial Inclusion Knowledge Sharing Session # 1

LIFT Financial Inclusion Knowledge Sharing Session # 1. “ Transforming NGO Microfinance ” UNOPS Office , Yangon Date: 13 Aug 2014. Transforming Microfinance Institutions Key Challenges and Success Factors. Hannes Manndorff Head of Global Business Development Accion August 13, 2014.

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LIFT Financial Inclusion Knowledge Sharing Session # 1

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  1. LIFT Financial Inclusion Knowledge Sharing Session # 1 “Transforming NGO Microfinance” UNOPS Office, Yangon Date: 13 Aug 2014

  2. Transforming Microfinance InstitutionsKey Challenges and Success Factors Hannes Manndorff Head of Global Business Development Accion August 13, 2014

  3. What is Transformation? The process of transforming a microfinance NGO or microfinance program into a share company

  4. Why Transform? • Access to capital for expanded portfolio growth, increasing client reach • Decreased reliance on donor fundsand donor preferences • Increased size allows more investment in institutional capacity and training, improved efficiency, and ability to provide a broader range of financial services • Improved services to clients and a more professional image strengthens market position • Clear ownership structure and governance enhances accountability and institutional stability • Investors typically have high reporting standards, which increases transparency of MFI and industry

  5. Results to Date • First transformation from NGO to commercial microfinance bank occurred in Bolivia in 1992: Banco Sol • Banco Sol today: 650,000 depositors and 250,000 active borrowers • More than 100 transformations since then, in over 40 countries; many more evolving • Key research findings: • Outreach has increased due to greater access to capital • More products offered • Strengthened systems and controls • Improved reporting

  6. Key Challenges • Complex and time-consuming • Transformation is not cheap • Benefits may take time to realize • Managing change • Transformation often means giving up some control to new investor(s) • Transformation may lead to cultural challenges • Balancing social and financial return • Need to define future role of NGO

  7. Key Success Factors • Ensure buy-in from board and other key stakeholders • Chose the right investors • Develop a clear transformation plan, build broad internal coalition and hire full-time senior transformation manager • Ensure sufficient financial, managerial and technical resources are available to complete transformation • Proactively manage change: frequent information sharing, engage staff, address cultural challenges, etc. • Aim for diversified governance structure • Ensure full compliance with regulation

  8. Choosing an Investor: Strategic vs. Financial • Strategic / Social • Bring expertise, connections • Primarily concerned with vision, mission, target market, product mix, market share, social impact • Usually want board seat and some degree of influence over management in organization • In some cases, may want to take majority control • Financial • Concerned with financial return; less concerned with mission and vision • Interested in using board representation to ensure profitability • Can have shorter term investment horizons • Look for clear exit strategy

  9. Choosing the Right Investor(s) • Build diverse ownership group and diversified governance structure • Shared vision with regard to reducing poverty and building sustainability • Limit excessive shareholding by any one investor • Ensure adequate ‘deep pockets’ among investors • Select investors with willingness and ability to play active governance role • Select investors with eye to enhancing credibility and image in local financial sector • Introduce investors to regulators early in process

  10. Key Points • Transformation is time-consuming, complex and costly • Everyone needs to be on board and fully committed to transformation • Bringing in the right investor(s) is absolutely key • Transformation and changes that come with it need to be well managed

  11. Thank You! Hannes Manndorff Head of Global Business Development Accion hmanndorff@accion.org

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