Can Human Resource Challenges Halt The Growth Of Microfinance Commerce Essay

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Microfinance industry in India is growing in scale and scope. Its annual growth rate is more than 20 percent and it encompasses more than 70 million households in India. Even at this rate there is a huge scope for further expansion as it covers merely 3 percent of the poor families. The growth of the industry is multidimensional as it encompasses technological development in terms of use of mobile technology, bio-metrics, etc; new product development such as micro life insurance, group based health insurance, etc; development of new consumer segment, etc. Supportive government policy is also helping many banks, financial institutions as well as developmental organizations to enter in this sector. Due to this exponential growth of the sector, the manpower requirement has increased from mere 4000 in the year 2002 to 45,000 in the year 2009. It is likely to increase up to two fifty thousand in the next decade. The requirement of the manpower is not only at various cadres or levels; it also requires different types of skills sets. Microfinance being a peculiar industry which targets poor and disempowered people especially poor women requires special employee skills such as high motivation, high sense of belongingness for the organization, good communication, high mobility and preparedness to take up new challenges, etc. It is obvious that the success of the industry heavily depends on the insurgence of new talented manpower and the capacity building of existing manpower. The paper uses information form secondary sources such as existing research and visiting websites of the organizations. It uses qualitative analysis tools such as case studies, etc. The paper finds that though few initiatives have been taken by government as well as by private organizations to fill up the gap, no systematic effort has yet been made to see that industry growth would not get haltered in future. It also highlights few experiments implemented by private organizations which have been successful to overcome the barriers. At the end it provides few suggestions to tackle this challenge in the short run and in the long run.

Key words: Microfinance, HRM, Training & development


Indian microfinance industry is showing an impressive growth not only in terms of client coverage and outstanding portfolio, but also in terms of the widespread impact it is having on the lives of bottom of the pyramid. In last few years despite recession affecting other sectors adversely, this industry has shown growth of minimum 20 percent per annum. Various factors such as increasing reach of Micro Finance institutions (MFIs) and Self Help Group (SHG) Bank Linkage Programme (SHGBL) initiated by NABARD, favourable government policies, positive role taken by foreign investors and donor organizations and high growth of social entrepreneurs entering in this field all have contributed to this stupendous growth. One of the constraints which it faced today is managing human resources. Finding and retaining competent and skilled manpower to manage this growth is the toughest challenge witch the organizations are facing today. This paper throws some light on the challenges of human resource management in the microfinance industry and tries to provide some suggestions to overcome them.

Growth of Microfinance Industry in India:

Two main operating microfinance models i.e. The Self- Help Group (SHG) - Bank linkage programme and Micro Finance Institutions (MFIs) have recorded an impressive growth in past few years. Table 1gives the details of the client outreach by these two programmes.

Table 1: Number of Clients covered under microfinance programmes (in millions):







Growth (%)


SHG bank Linkage programme






4.9 %







17.6 %







8.8 %

Total adjusted for overlap






8.0 %

Source: Srinivasan, Microfinance India: State of the Sector Report 2009, 2010, 2011, Sage Publication India Pvt Ltd.

The overall coverage of microfinance after adjusting the overlap between SHG bank linkage programme and MFIs programme has increased from 45 million clients to 77 million clients between 2006-07 to 2010-11. If we take a broader definition of microfinance which includes small accounts of commercial banks as well as small and vulnerable borrowing members of the Primary Agricultural Societies, the outreach will increase to 162 million clients. Though microfinance also covers non-poor as well as transient poor in large numbers, it is estimated that more than 50 per cent of low income households out of about 162 million are covered under microfinance programme (Srinivasan: 2011). The total outstanding loans have increased from Rs. 229.54 billion to Rs. 513.83 billion during 2010 to 2011.

Need for Human Resource Management in Microfinance sector:

Effective HRM is about getting the right number of people with right attitude and skills in the right place at the right time (Pityn & Helmuth:2007). It involves designing and setting processes planning, policies for human resources, recruitment and selection processes, salary, benefits and incentives, performance appraisal systems, and training & development programmes for the human resources within the organization.

The exponential growth of the sector has posed a challenge for MFIs not only in India, but across various countries. Microfinance Banana Skins Reports carried out annually since 2008 by The CSFI Survey of Microfinance describes the risks facing to global microfinance industry by taking a survey of practitioners, investors, regulators and observers. These surveys show that issues related to corporate governance and management quality are ranked in first five for all the years. Issues related to recruiting suitable staff was ranked in first five in 2008 survey and 14th in 2012 survey. One major difference between microfinance sector and other sectors while looking at HR issues is that this challenge is not understood clearly in microfinance sector as this sector has not evolved professionally and it is believed that it can be managed easily as it is operating at 'micro' level (Ismawan: 2007). Ikeanyibe (2009) states that one of the crucial reason behind slow growth of microfinance in Nigeria towards becoming sustainable is poor human resource management in this sector.

The survey conducted by Microfinance Insights (2008) states that more than 51 percent of MFIs in India consider human capital issues as the most pressing issue in comparison to financial issues, technical issues and turnover issues. In managing human capital, recruiting qualified staff is considered to be utmost important challenge (32 % organizations considered it most important) followed by preventing turnover (28 %) and training and capacity building (24 %). The main important challenges are 1) recruitment and selection 2) performance management, remuneration and incentive management 3) training and development and 4) human resource planning & policies. Besides these there are other challenges such as finding candidates who would be willing to work in rural locations, retaining the field staff, determining timings of the workforce and keeping the field staff motivated.

Discussion on each of the major issue is dealt with in detail as follows:

Recruitment of the qualified staff and management:

Microfinance as an industry has certain unique features which has a strong bearing on the manpower which it requires. It involves the methodology of large number of small sized transactions and meeting financial needs of poor in dispersed locations, requiring diversified services. Though the size of individual loan or savings is small, microfinance programme requires large size of operations to become economically viable. The microfinance programme is generally also supplemented by credit plus activities such as business training, capacity building, health and education programmes, etc. Thus the industry requires personnel with multi skills, high motivation, good communication and good community knowledge.

The requirement of manpower in microfinance has been rising from 4000 in the year 2002 to 45,000 in the year 2009 in India (Alok:2007). It is estimated that with this growing rate the requirement of skilled manpower in this sector is likely to increase to 2.5 lakh in next decade, out of which nearly 20,000 will be required at middle level management and 1,50,000 will be required as loan officers or area/ programme leaders (Sector Report- Microfinance India: 2009). In addition to this, there will be requirement of microfinance professionals in commercial banks, insurance companies, agricultural banks and enterprises as well as in other development organizations including government organizations implementing development programmes.

There are various reasons why microfinance industry has not been able to attract competent personnel. Firstly, different kinds of organizations such as banks, welfare organizations, NGOs, financial organizations have entered in this sector implementing diverse business models to run the show. Thus their needs for human resources are also varied. Secondly, indicators to measure the performance of human resources is varied which takes into consideration social performance along with profitability which does not give any clear picture of the industry to the bystander. Thirdly, as most of the organizations today are of regional or local nature, the growth prospects within the organization are not seen very prospective. As a result most of the organizations have to rely on ad hoc planning and recruit people mostly on the basis of their local knowledge, integrity, and willingness to learn and mix with the community and compromise on their technical competencies and professional experience. Broadly these organizations can be classified in to two categories such as those which have focused their activities in providing financial services to poor and those which are developmental organizations which are slowly expanding their operations in microfinance along with other developmental programmes such as education, health, etc. Requirement of human resources of both types of organizations is different as for the first category organization, the sustainability and scaling up of operations is important where as for the second category it is not so important.

The Organization Structure of a typical microfinance organization is given below:

Chart 1: Organization Structure of MFI

Trustees/ Promoters/ Board of Directors/ CEOs

Area Coordinators / Directors/ Managers / Project leaders

Staff/ Administration

Field workers/Loan officers

SHG local leaders

SHG members

The skills required at different level are different. They are described below.

Table 2: Skill Requirements in Microfinance sector:


Core functions

Skills required


Trustees/ Leaders/ Strategic thinkers/ CEOs/etc

Policy making, strategic decision making, liaison with Government, donor organizations, partners, financial organizations

Leadership, motivation, capital market expertise, management, international experience at high position, etc. , knowledge about regulations and legal aspects


Director/ Manager/ project leaders

Needs and demand assessment of the clients, making and implementing business plan, coordination between top management and the area/ programme leaders

Knowledge about capital market, local community knowledge, local as well as English language, communication, management


Administrative Staff

Implementation of plans, documentations, monitoring budget, administration

Community knowledge, local language, adequate knowledge related to finances, accounts


Field workers/ area leaders

Formation of new SHGs, scanning applications of new clients, home/fields visits, community meetings, motivating people to join the programme, coordinating between management and SHG members

Local languages, communication skills, motivate ion, flexibility, mobility, accounts


SHG leader

Conducting monthly meetings, looking after financial transactions, between SHG members, organization and banks

Accounts, local language and knowledge, leadership, basic reading and writing skills

Though at each level, talent hunting is a challenge, it is much more severe at the middle level which is crucial for scaling up of the organizations (Ross, P et al: 2009). Middle level talent is also important for bringing up new generation of leadership to take up the challenges of scaling up and diversification.

Performance management, remuneration and incentive management:

Performance management is a process that helps employees to reach higher levels of performance though given set of objectives, action plans, conducive environment and opportunities for personal development. Fair and equitable remuneration and rewards, transparency in administration, open communication, understanding the parameters of recruitment and promotion all play a very significant role in creating trust in the authority and management. Microfinance organizations face a duel problem while deciding remuneration and incentives and promotion packages for their employees. On one hand they need to provide proper remuneration and promotion package to perform their jobs in responsible and competitive manner. Sufficient compensation also takes care that employees do not succumb to any pressure of fraudulent activities, the opportunities for which are very easily available in microfinance industry. On the other hand due to low budgets and financial constraints remunerative policies are generally cost effective.

Cook and Jaggers (2005) state the importance of staff retention policies are important for MFIs as they account for the direct cost of high turnover can be seen in terms of lost productivity, new recruitment cost, training and development cost, etc as well as the indirect cost in terms of loss in morale, increased absenteeism, fall in company image, etc.

Training and development:

Training is the acquisition of knowledge, skills that improve the performance in the current job, whereas development focuses on the knowledge and attitudes required to achieve long term career goals of an individual as well as organization's objectives (Wright: 2009). Training plays an important role understanding the organization's objectives and strategies to reach poor which is extremely vital for undertaking responsibilities. Induction is important for new employees to feel integrated with the organization, to understand the culture and objectives of the organization. Mubarik (2008) discusses the critical role of training and development in microfinance industry and states it acts like a multiplier if implemented properly. It also requires variety of training which is continuously evolving and aligning itself with changing needs and objectives of MFIs (Krumm:2007). Churchill (1997) states that foundation of any microfinance organization lies at the locus of interaction between the organization and its clients. The role of front line staff or loan offices, area leaders is very significant in build this relation. In such case training can act as a multiplier.

The kind and types of training required at various levels is also varied such as training in finance, business skills, use of technologies, information technologies, communication, new business training, etc. Due to scarcity of qualified personnel, MFIs heavily depend on recruiting non qualified yet motivated and responsible persons and investing in training and development to build up their skills and competencies required for the job. There is dearth of trainers in terms of numbers as well as in terms of capacities. As a result most of the MFIs today are using ad hoc training programmes as and when the resources are available. Very few higher education institutes offer specialized courses in microfinance as compensations are lower in this sector as compared to other sectors.

As mentioned in Microfinance Insight report (2008), India, more than 54 percent of the organizations have training programmes conducted at least once or twice in a year followed by 39 percent organizations conducting training programmes more than four times in a year. In practice more than 55 % of the development of an employee occurs through on the job experience followed by 15 % through job relationship and regular feedback mechanism (Mbeba: 2007). Sa-Dhan is one of the leading organization in India which is involved in spreading training and development activities in this sector. As per its findings, there are less than 25 institutes which are involved in imparting training and development activities in the field of microfinance. This number is grossly inadequate as compared to our present as well as future needs. Number of institutes in India have started taking initiative and have come forward to exploit this new opportunity. The details of these initiatives are compiled in the following table:

Table 3: details of the Training Programmes Conducted for MFI Employees


Name of the organization

Training programmes


Sa-Dhan in collaboration with Indian Institute of Banking and Finances, Mumbai

Diploma courses for microfinance, workshops for educational institutes, technical support to educational institutes providing training programmes, etc.


Planet Finance, Mumbai, India

IT training, web site creating, online training courses through online university, virtual library


IFMR Trust, Chennai

Designing and undertaking customized training programmes, development of need and impact assessment technologies, research


BIRD, Lucknow

Customised HR training programmes, conducting conferences


EDA, Gurgaon

Training courses for microfinance and microenterprises related to finances and operation management, social performance, capacity building needs assessment, capapcity building and handholding support to MFIs, CGAP and in house training courses, training to the trainers, etc.


ADMAS, New Delhi

Training programme for SHG Federation, process of formation and strengthening of federation, issues, functions and guiding principles of federation, etc.


KKIT School of rural Management, Bhubaneshwar

Customised training prgrammes, conferences and workshops


Indian School of Microfinance for Women, Ahmendabad

Principles of microfinance, Financial analysis, delinquency management, Accounting systems, internal audit, Empowerment assessment, Research methodologies

Source: Compiled by author from various sources

Human Resource Planning & Policies:

Human resource planning and policies are central to all other human resource related issues. Women's World Banking report on development of competency based human resource management (2007) states that microfinance organizations today cannot wholly rely on leadership qualities and capabilities of their leaders because as a growing organization it is required that development of capabilities of all the personnel must take place. Thus MFI must view HRM not only as a technical function but as significant strategy function to gain sustainable advantage. Strategies related to human resource planning and policies are largely decided by management quality and corporate governance policies of the MFI. Composition of board and institutional linkages affect how the organization is governed and managed. As MFIs are mainly emerged as an offshoots of development organizations quite often the composition of board is skewed more towards people with social development orientation rather than other managerial abilities (Sa-Dhun Report: 2006). As there is more pressure on MFIs to become financially sustainable in future, there is a need for board to become more active in running MFI in more professional manner where other managerial abilities such as technical expertise in law, finance, etc is required. Most of the organizations today lack proper governance and regulation and monitoring structure. At the same time most of them are showing healthy signs of growth. Capacity building in the form of training in managing information system, tracking loan portfolios, appraisal and fund management system is required not only to manage the growth but also to mitigate risk. The performance of 127 Indian MFIs in Human Resource Quality & Management is rated by M-CRIL in 2003. The major findings are a follows:

Table 4: Quality of HR and Management


Trust/ Society


NBFC/ Sec 25 Cos



























Source: M-CRIL, Improving Microfinance Pracice, 2003.

It shows that not only majority of MFIs are following in any average category, except NBFCs & Sec 25 cos., not a single MFI is falling in excellent category. Perhaps, NBFCs and Sec 25 cos have improved their management practices in order to attract more investors and lenders.

Relevance of Challenges of HRM for MFIs in growing stages:

Key challenge in growing MFIs is to control the high performance of the human resources because HRM system comes under stress during high growth stage (Helmuth, Parrot & Cracknell: 2004). There is a change in organization culture, communication channels, recruitment and training needs, as well as performance management. Informal systems need to be replaced with formal systems. Job descriptions need to be clearly specified. Recruitment of candidates requiring different skills such as risk manger, internal auditors, marketing managers, etc is required. Training and development of existing staff to scale up the business and learn technical things and new staff to provide social orientation required to work in MFIs is urgently required. Period of growth is also likely to bring change in organization culture from more informal to more professional and standardized way. The requirements of the growing MFI are separation of HRM as a key functional area, recruiting professionals, induction & orientation, training & grooming of field staff and incentive based salaries.

Suggestions and recommendations:

Few suggestions are made based on the successful experiments from the field.

Selection and Recruitment:

Use of Brand Ambassador Technique: Ujjivan Financial Services Pvt Ltd, a reputed MFI in India uses this technique where existing employee of the company represent company by sharing his/her job positions and experiences to fresh applicants specifically coming from the same locality.

Recruiting local staff: Raghav N (2012) gives examples of few cases where MFIs in South India have used innovative tools to control high attrition of field workers and branch officers by hiring locally after doing ground verification of the candidates and groom field officers, loan officers to become branch officers in the long run.

Employee referral is used very effectively for attracting right talent. For instance Equitas Microfinance India employees more than 60 percent of their staff using employee referrals.

Looking out for alternate job seekers such as people who have taken VRS from banks, financial institutions, retired yet active people

Lateral employment of people who are willing to play their second inning

Employing management/post graduate students for summer project or on concurrent projects

Introduction of flexi timings to attract more women loan officers and branch officers

Introducing 'snack allowance' specifically for field workers as been effectively implemented by Equitas Microfinance, India.

Performance Management, Remuneration and incentive Management:

Setting clear and measurable goals and provision of training resources

Linking financial incentives to financial performance

Assessment of performance on individual parameters along with team parameters

Assessment of performance on economic as well as on social parameters.

Provision of economic as well as non economic incentives are important.

Training and Development:

One of the positive action taken by Bank of Indonesia in microfinance institutions is to start a collaborative effort for capacity building with Ministry of Finance, Indonesia and German Agency for Technical cooperation (GAT) in 2004 (Kere: 2007). This joint effort established the 'CERTIF' system which focuses on development of skills and competencies and set standards for personnel working in microfinance industry. Its main objective is to increase the outreach and to assure the quality of services to the low income groups through focusing on development of training courses and material, create sufficient number of trainers by training to the trainers, conducting examinations and certification for improving standards, linking organized and unorganized financial markets through training and building awareness about government policies and regulations

The open and distance learning is emerging out as a viable programme to deal with this problem. PlaNet Finance and The firm echange LCC implemented a pilot project to train MFI staff in Latin American & African MFIs, which is found out to be successful. It is potentially most viable means of providing training. Though inital investment is very high, it is lily to come down significantly after scaling. It can also be supplemented at later stage with follow-up training or direct training - blended approach. The main challenges in this type of training are initial investment in hardware and in software, development of methodology, courseware for effective delivery and development of basic computer literacy in order to improve the performance.

Moving from class room training to outdoor field training to give a practical exposure.

The combination of classroom and 'on-the-job' training is found out to be most effective.

Tie up with technical and management colleges

Conducting training and induction programme in vernacular / regional laungages

Change in the curriculum of existing management and other post graduate courses to incorporate knowledge and skills required for microfinance

Human Resource Planning and Policies:.

Pityn & Helmuth (2007) provide a tool kit to develop HRM system in MFI based on its size and development stage such as small size having up to 20 staff, medium having 20 to 49 staff and large MFI having 50+ staff. In the start-up stage HRM is likely to play a strategic role in institution's development. As MFI becomes medium scale, MRM activities become more administrative in nature. In large MFIs, HRM again starts playing a strategic role in influencing organizational structure and creating and maintaining organizational culture.

Need for formal and non formal financial sectors to come together and have collaborative programmes for Human resource planning.


It is very clear that microfinance is at this crucial juncture of growth phase heavily depends on competent, qualified and committed workforce. Though it poses as a major challenge for the sector today, it also opens a lot of opportunities to the microfinance sector as well as to other sectors such as education, placements, training and development, etc. microfinance being an intermediate sector operating between formal and informal financial sector, requires human resources having ability to work in ambiguous ever changing environment with professional approach. There is also need for continuously upgrading the skills and knowledge about the sector as the sector itself is evolving in terms of breadth and depth. Proper involvement of all the key stakeholders such as Government (Central, state as well as local governments), investors, MFIs, Banks, welfare organizations, regulatory authorities as well as clients is crucial to take up this challenge.