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Dear All members we have been having the dissicussions from the microfinance website and this was forwarded and would like you also to contribute;


Good Question:  Can Nonprofit organization only in MFIs avoid private appropriation of too much of MFI 'wealth' ultimately paid for by poor people?  Ancillary:  Should we have 2 names:  Social MFI  versus For-Profit-Of-Investors MFI (to distinguish which ones we would expect to prioritize and pursue non-pecuniary goals that expanded the opportunities for the poor, and which ones not)

With a multiple bottom-line like the best 'social' MFIs  (i.e. those that devote real resources--net revenue--- to ALL aspects of poverty and local environments), a nonprofit organizational structure makes a lot of sense, and I would argue suits the broader mission goals of 'good MFIs'. 

Full disclosure of 'bias':  I try and work only with cooperative or nonprofit financial institutions when I do volunteer work; no need to work free for people trying to maximize profits for themselves (& investors).  When I say 'investor' I mean those able to change the supreme decisions of an MFI, or any organization based on money purchase of voting rights.

In the USA, non-profit means both no income taxes (on 'corporate nonprofit' organization) and (2) that any NET REVENUES (after covering all costs) may NOT be distributed to personal ownership.  This 2nd feature operates as a brake device on any attempt to appropriate the 'wealth' of a nonprofit by self-interested parties.

This is seen as quite appropriate since nonprofits are not intended for mere profit maximization.  In the USA we rank them as 'public benefit' nonprofits and others.  The ones that have double or triple (or more) bottom lines.....not just financial success (survival) but social benefits, environmental benefits, etc., etc.,....the 'public benefit' ones, are given privileged tax treatment compared to the other kinds. 

If one wants (a) to keep all the net revenues in the nonprofit, and (b) to mainly use them to further the anti-poverty mission of the nonprofit, then the 'nonprofit' organizational structure makes sense.  The for-profit MFIs have always compromised this distinction.

Challenges Still Remain:  Non-profit today may be Transformed into For-Profit Tomorrow
In most Countries the 'nonprofit' designation can be legally altered under the local rules--thus, in most places, there is no guaranteed  long term 100% prohibition on transforming nonprofits into for-profits:

So, the  creation of an organization as a 'nonprofit' entity hinders, but may not prevent changes from occurring in the future.  The most frequent change for successful nonprofits is to turn the nonprofit into a for-profit organization that can be primarily focused on maximizing the income of the investor-owners.  Any 'wealth' or 'value' in the nonprofit can be appropriated by investor-buyers who get control of the newly minted for-profit (made out of all that the former nonprofit created).  We have seen this happen in the USA with changes in the rules (e.g. the Savings & Loan mutualistic banks that were turned into investor-owned for-profit banks in the reforms of the 1980s in the USA).  We have also seen this transformation occur in apparently nonprofit MFIs in places where the existing legislation permitted  (e.g. Compartamos in Mexico; SKS in India), where a small number of insiders got quite rich and where outsider 'investors' were also involved in the purchase of the newly created stock shares (and control of the new business).  From Charlie Rock
and forwarded by Natwijuka Colin

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