Abstraction: As microfinance industry has been turning quickly, in many topographic points the market of this sector becomes comparatively mature and lies in competitory state of affairs. Some of microfinance establishments start thought, researching and making non organic growing schemes. This paper presents the thought of non organic growing schemes in microfinance whether through strategic confederations or amalgamations and acquisitions which can be a pick for accomplishing rapid growing and enlargement. One of the cardinal success factors in making such schemes in microfinance could be the comprehensive appraisal to the similarities and differences of organisation ‘s features, such as their construction and civilization.
In the recent old ages doubtless that microfinance has become a diverse and turning industry. This sector has been pulling many eyes for several grounds. One of the grounds can be said that on one side microfinance concern is non merely based on fiscal motivation, but besides on other side used as agencies for societal development, as many called dual underside line chief. Many microfinance establishments ( MFIs ) have been puting and runing the concern in the country where there has been possible market of microenterprises and low-income families. Consultative Group to Help The Poor ( 2010 ) , loosely defined microfinance establishment ( MFI ) is as an organisation that deals with the proviso of fiscal services chiefly for the benefit of the hapless. These organisations vary in their legal construction, mission, and methodological analysis. By and large there are four classs of microfinance suppliers, viz. informal, member-owned organisations, NGOs and Formal fiscal establishments, such as Regulated MFI and Commercial Bank ( Helms, 2006 ) .
All classs of those microfinance establishments are fighting to turn and last in the sphere. As the market is confronting the adulthood and ferocious competition, many microfinance establishments maintain seeking to spread out their portfolio by supplying fiscal services to a larger figure of clients while at the same clip carry throughing an MFI ‘s societal mission. Some of them explore to alternative agencies for making rapid growing by explicating and making better schemes. They have been seeking to accommodate non organic growing schemes whether through making strategic confederations or amalgamations and acquisitions.
By and large talking in the universe of concern, we have been witnessing with a batch of illustrations of many houses accomplishing growing by making alliances/collaboration with other parties and amalgamations and acquisitions. Both schemes are common done by many houses in the universe since these can assist the houses to covering each ain failings and uniting each ain different resources every bit good as confronting challenges much more powerful. But in microfinance those two sort of schemes are still freshly developed.
In writer ‘s sentiment, the issue of non organic growing scheme chosen by MFI whether they want to make up one’s mind to make strategic alliance/collaboration or amalgamation and acquisition is interesting due to the fact of alone features of the participants in microfinance sphere as mentioned above. For illustration, we find that Microfinance Formal Financial Institution ( MFIF ) comparing to Microfinance NGO is more financially oriented instead than socially. In MFIF, the organisation ends are ever associated with the fiscal indexs and gross revenues indexs. Whereas in microfinance NGOs are closely related to the non fiscal alterations, peculiarly in the societal alterations of community, such as household income alterations, effects of loan to adult females empowerment, wellness etc. These differences are really of import to be understood sing that the differences built-in to those two establishments will impact to the successful or the failure of making non organic growing strategic.
Therefore, this paper presents the thought for MFIs, chiefly for MFIF and Microfinance NGO types, in taking such non organic growing schemes, whether they want to make a strategic confederation or amalgamation and acquisition. The construction of this paper will be presented as follows: Section 1 provides the background sing to author ‘s sentiment to raise the issue of non organic growing scheme in microfinance. The subdivision 2 elaborates the conceptual background about the definition of strategic confederation and the amalgamation and acquisition, and points out motivations and diffrences behinds these schemes every bit good as the account of success keys. Then institutional characteristics of participants in microfinance sphere is presented in the subdivision 3. In the subdivision 4, we try to give the thought to reply the inquiry which scheme chosen by MFIs based on the different features of those non organic growing schemes and typical characteristics of microfinance establishments as explained in subdivision 2 and 3, and this subdivision leads to the decision as subdivision 5. At the terminal mentions are appeared in the subdivision 6.
The restriction of this paper is non turn toing the issue of confederations or amalgamations and acquisitions between MFIs which formed in informal and member-owned organisations or co-ops. This paper merely focuses on the basic thought of making confederations or amalgamations and acquisition for MFIFs and NGOs signifier and does n’t explicate quantitatively in inside informations.
The words of ”organic growing ” and ”non-organic ” ( external ) growing are common known in the corporate growing treatment. Organic growing is normally defined as a company ‘s growing rate excepting any scale additions from coup d’etats, acquisitions, or amalgamations. Growth of this type is besides referred to as a company ‘s nucleus growing. Organic growing is generated, for illustration, by selling more merchandise ( services every bit good ) to current clients, selling merchandise to new clients, or selling merchandise at a higher monetary value ( Dalton and Dalton, 2006 ) .Whereas non organic growing evidently can be defined as a scheme to obtain company ‘s growing through confederations, amalgamations and acquisition and coup d’etats.
Many houses decide to make confederations /collaboration or amalgamation acquisition to last and to turn instead than to run concern trusting on the single attempts. These non growing schemes are done by many houses to organize powerful energy in pull offing difference resources owned by each party. As Zhiang et Al ( 2009 ) notes that resources are heterogeneously distributed across houses, hence some of import internal resources can be obtained from external beginnings via inter organisational relationships such as confederations, or by prosecuting in amalgamations and acquisitions. Compared to internal development or organic growing, strategic confederations every bit good as amalgamations and acquisitions scheme is a much faster manner to construct organic capablenesss.
A strategic confederation is defined as an agreement between two or more independent companies that decide to transport out a undertaking or run in a specific concern country by organizing the necessary accomplishments and resources jointly instead than runing on their ain or unifying their operations ( Dussauge et al,1999 ) . It can be a contractual agreement to join forces on one or all degrees without any intended alteration in organisation legal construction ( McCarter, 2002 ) . Strategic confederation occurs for a certain period of clip whether short or long clip. Harmonizing to Koza and Lewin ( 1998 ) , there are two chief motives for the determination of making confederations, viz. exploitatory and explorative. Exploitative means that in the in agreement confederation, each party seeks to leverage their ain resources and capablenesss in order to heighten gross or cut down cost, whereas exploratory each join forcesing party willing to make new chances, markets, merchandise and engineerings.
From the conceptual point of position, Sudarsanam ( 2003 ) lists some factors potentially conducive to successful confederations:
- Each party should convey complimentary accomplishments, capablenesss and market to the confederation
- Market overlap between spouses should be minimum to avoid struggle of involvement
- Alliance should be based on balance of concern strength and ownership involvement among spouses
- The confederation must hold a grade of liberty with strong leading and continual committedness and support
- The confederation must construct up trust and assurance between the spouses and non depend merely contractual right and duties
- Divergence of direction manners and corporate civilization must be handled with sensitiveness, and a new common manner and civilization distinct.
Amalgamation and Acquisition
Amalgamation and acquisition is defined as the combination of two companies or houses to accomplish certain strategic and concern aims organizing a great significance dealing non merely to the companies but besides to many constituencies, such as portion holder, workers, directors, rivals, communities every bit good as the economic system as whole ( Sudarsanam, 2003 ) . Schoenberg ( 2003 ) notes that houses frequently use amalgamations and acquisitions in order to accomplish such diverse strategic ends, for illustration, increasing market power, spread outing to new merchandise markets or geographical districts, or deriving entree to valuable resources. From this point, even though it seems we can see that strategic confederation and amalgamations and acquistions have the similar intent but we noticed that amalgamations and acquisitions may make some different alteration refering the concern, organisation, ownership and legal position in the consequence company.
Furthermore, Damodaran ( 2002 ) describes the term of amalgamation, consolidation, stamp offer, acquisition and purchase out as all parts of amalgamation and acquisition idioms, and a house can be combined by another house by 5 ways:
- Amalgamations, when a mark house go portion of geting house and shareholder blessing needed from both houses.
- Consolidation, when mark house and geting steadfast go new house and shareholder blessing needed from both houses.
- Tender offer, when house continues to be, every bit long as there are heretical shareholders keeping out. Successful stamp offers finally become amalgamations and no stockholder blessing is needed.
- Acquisition of plus, when mark house remains as shell company, but its assets are transferred to the geting house and finally aim house is liquidated.
- Buy Out, when mark house continues to be but as a private concern normally accomplished with stamp offer.
There are several and diverse motivations for amalgamations and acquisitions, Johnson et Al ( 2005 ) grouped under three headers. They are environment, strategic capableness and outlooks:
- Environment. The demand to maintain up with a altering environment can rule believing about acquisitions. Some major facets which influenced the changing environment are the demand of concern velocity, competitory state of affairs and deregulating.
- Strategic capableness. Achieving cost efficiency, developing invention and learning organisation are some grounds behind amalgamations and acquisitions in many industries.
- Expectation. In some ways, stakeholders have extremely outlook and involvement to give penetration for the growing of company. In this instance, amalgamations and acquisition may be perceived by many stakeholders as a speedy manner to present company ‘s growing.
Mark and Mirvis ( 1993 ) , from their research have summarized that one of the cardinal success for set uping the desired combination between two companies is the appraisal of two sides company ‘s constructions and civilizations. They suggest that in amalgamations and acquisitions attempts, each party should be proactive in the pre combination stage ; planning and readying are built-in to success when companies join forces At least there are different facets to be taken into history carefully in maneuvering a combination toward the successful way: intent, spouse, parametric quantity and people. But it does n’t stop up to the planning and readying. The most of import thing to be taken into history for accomplishing successful amalgamations and acquisitions is post-merger combination. All these attempts may assist to get the better of the most normally cited grounds for failures: conflicting corporate civilizations, over appraisal of synergisms, unequal due diligence, slow/poor post-merger combination and hapless leading or direction ( McCarter, 2002 )
From the account about two sorts of non organic growing scheme above, we can observe the chief difference between strategic confederations and amalgamations and acquisitions. It can be said that making strategic confederations is non every bit hard as amalgamations and acquisitions. It is because of doing the amalgamations and acquisition work successfully is complicated procedure which involves non merely seting two organisations together but besides involves incorporating people of two organisations with different civilizations, attitudes and mentalities ( Mallikarjunappa and Nayak, 2007 ) . Meanwhile, in the strategic confederations, each company is still independent and it seems to necessitate less attempt in term of cost and clip.
Therefore, Reuer ( 1999 ) differentiates confederations and amalgamation and acquisitions in four dimensions which strategic confederations may be preferred:
- Infeasibility: acquisition may non be executable for regulative, political or legal grounds.
- Information dissymmetry: the spouses have entree to different information sets doing it hard to value their comparative parts
- Indigestibility: station – amalgamations and acquisition integrating of the acquirer and the acquired houses airss jobs so severe as to forestall value creative activity from the acquisition. When indigestibleness is significant, confederations can be attractive because they allow companies to associate their resources selectively. Even when acquired assets can be divested this confederation advantage remains.
- Strategic flexibleness: it is more of import than committedness of the spouses.
Now, how we relate this conceptual background of those scheme into the thought of impelementing these to the microfinance industry. However, we should better cognize the two sort of institutional characteristics of microfinance as explained below.
Institutional Features: MFIFs and MFI NGOs
As mentioned in the old page, there are some participants in the microfinance sphere and they evidently have different features. However, there are fundamentally two chief different features in the treatment about participants in microfinance industry, viz. for net income or financially oriented, and non net income or socially oriented The financially orientated establishment, chiefly private enterprises/ companies, could be Microfinance Formal fiscal establishments ( MFIF ) such as bank and regulated MFI or non bank fiscal establishment. Mean while the socially oriented establishments, most of them are NGOs.
What makes different between two types of MFIs? It may be better to look at a tabular array presented by Estallo et Al ( 2006 ) bespeaking the differences between private endeavor and NGO types:
All these factors make different construction and civilization of those two organisations. In the instance of MFIs, another of import typical characteristic between private MFIFs and MFI NGOs is refering with the ownership. As Lauer ( 2008 ) stated that ownership construction is one of the critical issues to see in the specific context of each type transmutation of such establishment. MFIs ownership construction encompasses the ensemble of mechanism by which stakeholders define and pursue the establishment vision and mission and guarantee its sustainability.
Alliances or Merger and Acquisitions?
As whole, from the conceptual background subdivision, we have seen that strategic confederations and amalgamations and acquisitions might hold some similarities and some chiefly differences. In other subdivision, we have besides already known the chief difference features of the microfinance participants. Then now it raises a inquiry how does an MFI choose a pick between two?
MFIF – Nongovernmental organization Alliances
There have been some groundss that confederations can assist the collaborative houses or establishment to spread out its concern. Strategic confederations are able to scale up entree to fiscal services in rural countries in term of the outreach to new clients and markets every bit good as the debut of new merchandises ( Gallardo et al, 2006 ) . Rondinelli and London ( 2003 ) noted that ‘Alliances, in fact, may be the lone option for companies interested in accessing the cognition held by ( NGOs ) , since internal development of such expertness may be excessively dearly-won, inefficient and time-consuming for most companies and amalgamation with or acquisition of an ( NGO ) is extremely improbable ‘ . While Kramer and Kania ( 2006 ) besides stated with a similar position that not-for-profits frequently have much deeper comprehension to work out the societal jobs, which enables them to assist companies finding comprehensive schemes and put more ambitious and ends. Strategic confederations are besides of import in the populace sector – as a agency of turn toing peculiar societal results ( Johnson et al, 2005 ) . This besides could go on in the confederation MFIF-NGO.
Dahan et Al ( 2009 ) gives illustrations of MFIF – NGO strategic confederations. HSBC Amanah ( HSBC ‘s planetary Islamic banking division ) has partnered with, an international development and alleviation organisation, the Islamic Relief, to supply fiscal services to Muslims in conformity with Islamic Shariah jurisprudence. Another illustration is In Dominica. MasterCard builds on an affinity card relationship with Banco Popular Dominicano and Asociacion para el Desarrollo de Microempresas, Inc. ( ADEMI ) , a micro and small-scale loaner.This partnership is aimed at supplying unbankable enterprisers utilizing MasterCard-ADEMI- BancoPopular Dominicano recognition cards to retreat hard currency and to pay public-service corporation and other measures in order to back up the micro enterprisers in Dominica to run their concern.
However, this does non shut the possibility of the combination between MFIF and NGO in amalgamations form. For illustration, McCarter ( 2002 ) , gives two amalgamations between MFIF with NGO. In Nicaragua, the Interfin, a accredited Nicaraguan moneyman, in January 2000 merged with NGO Mennonite Economic Development Associates ( MEDA ) Chispa microcredit plan, organizing Financiera Confia. Another illustration in Guatemala, there was a amalgamation between Bancasol, a local commercial bank, with ACCION International ‘s affiliate NGO to organize Genesis. Meanwhile in 2007, Sonata, a start up MFI in Northern India purchased of Jeevika Livelihood Support Organization to spread out its microfinance operation ( Tiwari and Chasnow, 2009 ) .
Amalgamations and Acquisitions between MFIF and MFIF or between NGO and NGO
As stated on the old page, doing the amalgamations and acquisition work is complicated procedure instead than strategic confederations, but this does n’t intend that this scheme is far off from success. Amalgamations and acquisitions can be used by MFIs to make new capableness to last and accomplish significance growing.
Amalgamations and acquisitions are non merely about the combination between two organisations which simply based on fiscal facet but besides the construction and civilization of two organisations combined. It takes much more energy, cost and clip. It may be the similarity of construction and civilization of organisation used as a good starting point to believe about amalgamations and acquisitions in the sphere of non growing scheme of MFIs. So making MFIF-MFIF amalgamation or NGO-NGO amalgamations is more appropriate combination than making strategic confederations. However, it does n’t intend that MFIF-MFIF strategic confederations can non be implemented to cut down the competition tenseness. There are some illustrations amalgamations and acquisition in the microfinance industry around the universe as summarized and showed in the extension of this paper.
As the microfinance sector matures, non organic growing schemes chiefly strategic confederations and amalgamations and acquisitions can be a pick for accomplishing rapid growing and enlargement in microfinance. Of class, this attempt really is non easy to be implemented. But it is besides non to state that doing work such schemes is impossible to be realized.
By analysing the differences between two non organic growing schemes above every bit good as the different features between MFIF and NGO, on the one manus we may reason that strategic confederation will probably to be considered for both instead than amalgamations and acquisitions. However, this does non shut the possibility of the combination between MFIF and NGO in amalgamations and acquisitions form. A strategic confederation between MFIF and NGOs is less attempt in term of cost and clip but still can ensue in the growing of the organisation.
On the other manus, amalgamations and acquisition can besides be created for uniting MFIF with MFIF or NGO with NGO. Some groundss showed that the similarity of the construction and civilization of those organisations can be used as the good starting point to make amalgamations and acquisition. It is really of import to be considered because amalgamations and acquisitions are non merely about the matrimony between two organisations which simply based on fiscal facet but besides the construction and civilization of two organisations combined.
One of the cardinal success factors for the future microfinance non growing scheme should be based on the appraisal of features of the similarities and differences of organisation ( i.e construction and civilization ) before taking strategic confederations or amalgamations and acquisitions scheme. For those microfinance organisations who intend to make a non growing organic scheme but both of them have extremely different construction and civilization, it may be a strategic confederation is more suited to be created. But in the instance, there are some similarities in term of organisation ‘s features, amalgamation and acquisition could be an option.
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