The second note in the series of publications on Small Finance Banks, the IFN titled “Small Finance Banks – Risks and Challenges of Transformation of MFIs/NBFCs” explores the key challenges, and the potential deal breakers for MFIs and NBFCs intending to transform to SFBs. Overall, as highlighted in the first note of the series, MFIs/NBFCs are best fit to transform into SFBs given the lucrative business proposition and the potential opportunity. However, the institutions have to be cognisant of the risks of transformation. Transformation to SFB entails changes in the business model, organisational structure, capital structure, product suite, IT/MIS, and others. These changes will lead to risk and challenges for the institution and it is important that the institutions must carefully think if transformation would be a sound strategic move for them. MFIs/NBFCs should conduct a thorough review of their business plans, product suite and their competence to transform and manage banking business before embarking on the journey of the transformation.

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