Aligning Interests During MFI Transformation: El Salvador Roundtable

> Posted by Alex Silva
CalmeadowIn 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.
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