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NGOs: Social development organizations or business entities?

01.01.70

By Vincent Obiro Orute

Should non- governmental organizations (NGOs) operate as social development organizations or business entities? This is one issue most NGOs operating in Africa have had to deal with in the last few years.

NGOs, although expected to operate efficiently and effectively and to cover as much of their operational costs as possible, do not generate enough funds to enable them meet their day- to- day operational costs.

Typically, they work round the clock to deliver services to a target group for whom "the market" has failed miserably.

For many NGOs operating in Africa, financial self- sustainability as an institution is not a goal consistent with their corporate missions.

So, if one were to consider the system as a whole, then one can be much clearer about where the subsidies most NGOs receive from abroad go to. And if a given institution (NGO) is solely involved in providing social intermediation, then one can accurately make an informed decision on providing ongoing subsidy for his or her work.

If you look at most NGOs especially micro finance institutions operating in Africa, the picture that emerges is that they are involved in a mix of "business" and "development" in their corporate missions.

So, instead of trying to force formal banks to become NGOs worrying about social intermediation, empowerment, and participation, and instead of urging NGOs to transform themselves into formal banks that make a profit, we should instead encourage NGOs to forge or form partnerships across the globe in which each NGO does what it does best, pursuing its corporate mission while at the same time combining different skills to provide a lasting system that provides the poor with access to financial services.

However, it is important to note that a new breed of NGOs called "business NGOs" is now beginning to emerge in Africa. These are NGOs that do combine "business" and "development" in their mission statements. In such NGOs, you will meet something like this in their mission statements: "Our mission is to provide social intermediation and at the same time generate enough funds to cover our day- to- day operational costs".

So, in the discourse currently surrounding microfinance, there seems to be an expectation that all NGOs involved in micro finance should basically transform themselves into formal vibrant financial institutions to achieve the goal of financial self-sustainability.

But before encouraging an NGO to transform itself into a formal financial institution, it is important to be very clear about its institutional goals, management capacity, and its experience.

Not all NGOs can- or should- become formal financial institutions. Indeed, there are many valid roles for NGOs to play within a sustainable system of financial intermediation even if they themselves are not able to become financially self- sustainable in the way that a well performing bank or cooperative can.

For instance, they can provide enterprise development services, or non financial services that assist the micro-entrepreneurs. These include, business training, marketing and technology services, skills development, and sub sector analysis. Enterprise development services may or may not necessarily require subsidies, depending on the willingness and ability of clients to pay for these services.

They can also provide social services, or non-financial services that focus exclusively on improving the well- being of micro entrepreneurs. These include health, nutrition, education, and literacy training. Social services are likely to require ongoing subsidies that are often provided through donors supporting the NGO in question.

The degree to which an MFI provides each of these services depends very much on whether it takes "minimalist" or "integrated" approach.

Vincent Obiro Orute is a seasoned banker and micro finance expert and now conducts in- house training on micro finance to micro finance institutions that are in dire need of such services, Email: Orutev@yahoo.comor orute_obiro@hotmail.com

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