Giving Compass' Take:

• Sometimes, it might be necessary to strategically navigate shutting down a successful nonprofit by gifting its assets to better-equipped organizations. 

• How can donors support strategic shifts for nonprofits? 

• Learn about various nonprofit models and strategies. 

Between 1998 and 2018, DB MDF made 124 loans totaling $18.2 million to 89 microfinance institutions (MFIs). In its first decade, every dollar it lent led to more than $10 in new financing for MFIs, which allowed them to expand lending to low-income people in developing countries. As it achieved this success, the world had changed: Microfinance had gone mainstream in many countries, and commercial lending to well-run MFIs had become much more common. Furthermore, many mainstream MFIs needed foreign equity rather than debt, while those grassroots organizations requiring debt, such as agricultural cooperatives, were structured very differently from the MFIs that we had come to understand so well.

The DB MDF board concluded that it did not have the capacity to reinvent its strategy to be relevant in such a different landscape. As a result, the board decided that all of DB MDF's outstanding loans to anti-poverty MFIs—which had helped the groups access commercial loans that reduced their dependency on donations—would not be redeployed after they were paid back. Instead, we accumulated a multi-million dollar cash reserve.

As this process unfolded, the board sought another organization with the energy, ideas, network, and values to put those financial resources to work for the benefit of credit-starved microentrepreneurs and small businesses in developing countries. Today, DB MDF’s assets are being used by MCE Social Capital to expand its small and growing business portfolio, a recent outgrowth of the organization’s success in lending to MFIs since 2006.

This decision in some ways was an attempt to get ahead of the creative destruction that is commonly seen (and often criticized) in the marketplace, such as the upheaval in the digital advertising business caused by Google and Facebook. We knew things were changing and that we needed an organization that understood this new world better than we could. The process of finding that team is difficult. Here are some insights for others considering doing the same.

Read the full article about shutting down a nonprofit by Alex Counts & Gary Hattem at Stanford Social Innovation Review.