Transforming Microfinance Institutions in the Arab World : Opportunities, Challenges and Alignment of Interest
Transformations in the microfinance industry have been widespread practice globally since the late 1990s. Currently, transformed MFIs transact the bulk of all microfinance operations, measured by number of clients as well as portfolio size. However...
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| Format: | Report |
| Language: | English |
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International Finance Corporation, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/174101532542008689/Transforming-microfinance-institutions-in-the-Arab-world-opportunities-challenges-and-alignment-of-interest http://hdl.handle.net/10986/30192 |
| Summary: | Transformations in the microfinance
industry have been widespread practice globally since the
late 1990s. Currently, transformed MFIs transact the bulk of
all microfinance operations, measured by number of clients
as well as portfolio size. However, the few transformations
that have taken place in the Arab World have mostly involved
transforming international microcredit programs into
registered institutions, with many of them remaining
unregulated. The reasons for this are mostly related to the
broader enabling environment and to legal frameworks and
regulations that include an increase in taxes owed under the
new legal status. In addition, concerns of mission drift,
long central to discussions of transformation, have led to
skepticism of the process altogether. Lastly, MFI employees
may have concerns about the transformation process, ranging
from their personal beliefs to uncertainty about their
future under a new for-profit company. In recent years,
however, regulations in some Arab countries have changed,
and other barriers to transformation, such as concerns about
mission drift and doubts among staff, have been handled with
greater delicacy and success. Accordingly, the time has come
to take a closer look at what this process might entail.
This paper presents the Arab context, and discusses the
benefits, costs, challenges, and opportunities associated
with transforming a not-for-profit into a for-profit entity
– not necessarily a bank. While what has worked elsewhere
may not necessarily be applicable in the Arab World, the
body of evidence is quite clear that institutional growth is
sustained by a variety of funding channels, and that the
opportunity to grow and better serve the underserved has
encouraged many MFIs in the Arab World to reconsider
transformation. This study also presents the results of a
survey conducted jointly by IFC and Sanabel to better
understand where MFIs in the Arab World currently stand in
the transformation process. The survey was sent by email to
a select group of MFIs that are either the leading MFIs in
their countries or have already expressed interest in
transformation. It was composed of two sections. The first
collected background information, particularly about their
current legal structure and plans to transform. The second
was addressed to MFIs that have already transformed or are
considering transformation, to understand how they view the
benefits and challenges. As a part of this undertaking, the
survey also asked questions about the MFIs’ interest in
allowing staff to participate in the transformed entity’s
equity by setting up an employee stock option plan (ESOP).
This is a form of staff compensation in which select staff
are awarded shares in the share-capital company that employs
them. A few MFIs in other regions have implemented ESOPs
during transformation to address staff concerns, reward
demanding work, and align individuals’ goals with those of
the institution. The survey sought to measure interest in
ESOPs among respondents, as well as ask how they view the
benefits, challenges, and appropriate terms of ESOPs. For
MFIs wishing to explore this concept more deeply, Annex I of
this paper addresses ways to implement ESOPs, and presents
examples of MFIs that have elected to offer them. |
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