Substantive Legitimacy of Transformed Microfinance Organizations: Case Study from India

An increasing number of nonprofits have shifted their microfinance operation to a for-profit format. Little has been explored on how these for-profits are being legitimized. This paper draws on the legitimacy theory to explore how nonprofits use substantive actions to seek legitimacy within the community to commercialize microfinance operations. Findings from case studies on two Indian microfinance organizations reveal that these organizations use three sets of substantive actions focusing on performance, legal suitability, and community participation. Implications include the use of substantive actions by SEs to balance the dual purpose and to ensure downward accountability toward the community. This study extends our understanding of efforts undertaken by social enterprises to seek legitimacy with the community as the evaluator. The identification of substantial actions offers tools for managers to incorporate commercial processes within nonprofits.