HR Challenges In Micro Finance Institutions Essay

In today ‘s context whole concern universe is taking lag due to fiscal meltdown and recession, the micro finance sector is entering uninterrupted growing and touched billion dollar grade. Presently the sector is pulling many enterprisers including childs to come in into this concern with an aspiration to get down a microfinance establishment ( MFI ) . It is estimated that there are more than one 1000 MFIs presently runing in India and have disbursed merely for 10 % of the possible demand of over $ 50 billion because, big proportion of Indians are populating below poorness line and this demand for recognition for the hapless is still expected to billow in front.

The quality of service bringing in microfinance industry depends on individual to individual contact and relationship. Due to assorted disputing fortunes in concern, MFIs competitory places will maintain on alteration invariably. Hence it is more human resource intensive and sourcing of skilled and choice human resources will play a critical function for prolonging the growing of this industry. In order to play an effectual function by HR-Department at any MFI, the importance lies in integrating of several of import constituents of organisational architecture.

Constructing a solid and long permanent establishment is a really ambitious and multifaceted undertaking for the top degree direction every bit good as for HR-Department. But, HR is the most ignored map in Indian microfinance sector and HR planning is largely run on ad-hoc footing through quantitative in nature and used largely for finding new enlistings or publicities to gauge the salary disbursals. Other side this information would be utile for fiscal projections required to subject to the fiscal establishments for their loan proposals. The most critical issue in HR-Planning is happening right people for different MFI ‘s maps and their willingness to counterbalance adequately for people with relevant experience. There are really few people available with relevant experience because, microfinance sector has scaled up late and there are really limited preparation institutes or concern schools to churn out people with needed attitude and accomplishments set. Here the writer emphasized as how the HRM section should guarantee to supply an effectual work force to run into the vision and mission of the organisation. In this way the writer besides recommended that, HR professionals have to explicate ideal HR policies and processs with mention to MFI concern to do available right figure of people with right attitude and accomplishments in the right topographic point at the right clip.

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HR Challenges in Micro Finance Institutions ( MFIs )

In today ‘s context whole concern universe is taking lag due to fiscal meltdown and recession, the micro finance sector is entering uninterrupted growing and touched billion dollar grade. Presently the sector is pulling many enterprisers including childs to come in into this concern with an aspiration to get down a microfinance establishment ( MFI ) . It is estimated that there are more than one 1000 MFIs presently runing in India and have disbursed merely for 10 % of the possible demand of over $ 50 billion because, big proportion of Indians are populating below poorness line and this demand for recognition for the hapless is still expected to billow in front.

About MFIs:

Normally Micro finance establishments provide recognition and little loans to hapless people for get downing a concern or for buying/ devouring goods. Several MFIs offer services like accepting little nest eggs starts from Rs 10/- to Rs 25/- and insurance services besides. For such services, MFIs charge involvement of 30 % yearly. In world, this could be considered really high but many hapless people are borrowing from many private loaners who will non keep transparence and are known to bear down good over 100 % yearly. Still demand is plenty and available MFIs across the state are non equal and non delighting the demands of many hapless people in this way. Contrary to what bulk of people believe about bad loans or bad debts in micro recognition are really rare as compared to organized sector. Here merely 2 % of the entire loan expense has shown bad so far.

Till twosome of old ages ago an MFI was merely another non-profit activity for the cause of societal alteration. Predominantly the sector was largely dominated by NGOs, donor-driven organisations and few persons in rural markets. Surprisingly, investings in microfinance sector are on the rise due to the engagement of the capital market and several other private investors. At present, major international finance establishments and Bankss like Deutsche Bank, Citibank, HDFC and ICICI Bank come ining this section every bit good. Microfinance is fast emerging country for planetary participants ‘ with an appraisal of $ 3 billion investing in India and around $ 20 billion globally by 2010. Based on a research late conducted by Deutsche Bank, the volume of entire microfinance loans increased from $ 4 billion in 2001 to about $ 25 billion in 2006 and about 51 % of the entire borrowers are merely from South Asiatic part[ 1 ].

How to get down an MFI:

Get downing an MFI is in fact non every bit complicated as other fiscal concern. MFIs are bing from past several old ages in different unorganised methods as, recognition societies and trusts and disbursed recognition amongst those they serve. Persons or group of people can integrate a ‘not-for-profit company ‘ under the Companies Act, 1956. The other class to get down is ‘for-profit companies ‘ have to be registered as Non-Banking Finance Companies ( NBFCs ) with the RBI and necessitate immense paid-up capital. As per the norms of RBI, the minimal capital to be raised for start-ups in instance if person is runing as a Section 25 company or not-for-profit company must non be lower than Rs. 25 hundred thousand. Whereas get downing an NBFC requires Rs. 2 crore.

Scope and Opportunity for MFIs:

The microfinance concern pattern motion in India is in limelight harmonizing to assorted national and international concern and commercialism study analysis studies and seen as an attractive market with high possible investing chances. Hence, this tendency decidedly attracts many more concern magnets to happen more infinite to put into MFIs sphere. Harmonizing to Arjun Muralidharan[ 2 ], CEO, ASA-GV ‘s observation – “ the state of affairs may non be every bit simple as earlier, but the field is surely turning and anyone come ining into the sector should set up alternate beginning of financess now, ” he said. His MFI, ASA-GV has non limited itself to merely micro recognition, it disbursed into other related countries over Rs 700 crore and offering a combination of fiscal merchandises for adult females by taking at the economic authorization of hapless adult females. At the minute, ASA-GV is in the procedure of developing particular strategies related to societal security for its members by offering the benefit of life insurance and accident insurance and old age rente similar to pension strategy offered by the organized sectors like SBI, HDFC, Etc.

Harmonizing to a research study by Hyderabad based organization- Intellecap[ 3 ], Indian MFIs are expected to construct a portfolio of $ 6.27 billion by 2012 through pull offing over 48.7 million borrowers. It ‘s another study[ 4 ]with a sample of the 60 largest MFIs in the state ( based on their figure of clients ) jointly achieved near to 10 million clients in 2007 with a cumulative portfolio of INR 31.14 billion ( $ 769 million ) . All classs of MFIs jointly displayed mean CAGRs of over 70 % . In add-on to this their operating cost ratios came down and returns increased significantly. The efficiency and profitableness indexs of Indian MFIs are extremely favourable as compared to other Asiatic opposite numbers due to better direction accomplishments and the handiness of right funding patterns and constructing up of institutional abilities to do effectual use of the fiscal resources will specify the public presentation of several MFIs in the following phase of growing. The growing tendency and impressive public presentation of MFIs in India attracted the attending of many mainstream commercial investors across the local and planetary markets and shown growing twelvemonth after twelvemonth harmonizing to the tabular array -1 mentioned below[ 5 ]. Microfinance gained its existent impulse after 2004 and started turning more than 100 % twelvemonth to twelvemonth. The growing impulse is expected to go on for a few more old ages

Table 1: Growth in Microfinance Outstanding

Year

Outstanding

( Rs Crores )

Year

Outstanding

( Rs Crores )

March – 2002

200

March – 2006

2300

March – 2003

300

March – 2007

4000

March – 2004

400

March – 2008

7000

March – 2005

1100

March – 2009

10,000

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Intellecap identified about 40 domestic and international participants interested in equity extract of about INR 1.74 billion ( $ 43 million ) , out of which INR 1.54 billion ( $ 38.2 million ) flowed in during first one-fourth of 2007. The investing tendency continued positively in 2008 besides. But, the investing focal point was mostly towards Tier-1 MFIs like Bandhan, Microcredit Foundation of India, Sa-dhan, Grameen Koota, SHARE, SKS, GK, Spandana, BASIX etc.

The quality of service bringing in microfinance industry depends on individual to individual contact and relationship. Due to assorted disputing fortunes in concern, MFIs competitory places will maintain on alteration invariably. Hence it is more human resource intensive and sourcing of skilled and choice human resources will play a critical function for prolonging the growing of this industry. In order to play an effectual function by HR-Department at any MFI, the importance lies in integrating of several of import constituents of organisational architecture.

Importance of HR-Dept in pull offing the MFIs growing:

Constructing a solid and long permanent establishment is a really ambitious and multifaceted undertaking for the top degree direction every bit good as for HR-Department. But, HR is the most ignored map in Indian microfinance sector and HR planning is largely run on ad-hoc footing through quantitative in nature and used largely for finding new enlistings or publicities to gauge the salary disbursals. Other side this information would be utile for fiscal projections required to subject to the fiscal establishments for their loan proposals. The most critical issue in HR-Planning is happening right people for different MFI ‘s maps and their willingness to counterbalance adequately for people with relevant experience. There are really few people available with relevant experience because, microfinance sector has scaled up late and there are really limited preparation institutes or concern schools to churn out people with needed attitude and accomplishments set. Harmonizing to a study study by an MFI- ‘Sa-Dhan ‘ , about 25 establishments in India have sole classs in microfinance, which is wholly unequal in the visible radiation of the demand for the sector.

Craig Churchill, in his research paper – “ Pull offing Growth: The Organizational Architecture of Microfinance Institutions ” , clearly outlined three elements interplay in this undertaking as Human Resource Development, Organizational Structure, and Institutional Culture as mentioned in diagram below. The diagram depicts how each of these three elements is distinguishable from each other and their convergence and influence with each other.

Figure -1: Architecture of Microfinance Institutions. Craig Churchill, 1997.

Beginning: Pull offing Growth: The Organizational

Human resource development:

Human resource development country plays a big function in act uponing organisational construction and institutional civilization. In fact, any MFI must be really strong in all the above three countries to run into the demands of concern growing.

Institutional Culture:

Each establishment will hold its ain alone civilization. The nucleus values, vision, mission and codification of behavior signifier the footing of this civilization and to a great extent influenced by the Chairman or Executive Director of the company and senior direction squad. Normally any institutional civilization is hard to nail because it is non something which is readily evident on the organisational chart. Furthermore civilization is chiefly reflected in the informal processs like staff interactions, working environment, establishment ‘s daily operations and so on. Effective Human Resource Management is one of the most of import tools to commit civilization. The most important HRM tools and patterns that shape institutional civilization are like:

The guiding rules, values and the house ‘s codification of behavior alliance based on the MFI ‘s vision and mission

HR Policies which reflect the MFI ‘s value systems

The general criterions of Performance Management bing in the MFI to measure the employees public presentation in crystalline mode

Well designed application signifiers, advertizements and enlisting procedures that create an feeling and portray about the several MFIs repute during enlisting

The way of employment contract and orientation procedure for new staff reveals the MFI ‘s strength of value statement

On the whole, it is critical to understand the overall HRM systems and tools by all employees. But, it is really of import as how officially and straight puting the tone and pass oning to staff about the several MFI ‘s civilization.

Organizational Structure:

In present direction context, level and simple organisational construction is the best theoretical account for any turning organisation. Team based work attack is merely considered as the best process in every organisation to increase the productiveness, efficiency and reactivity. All staff members must be organized in squads based different subdivisions, merchandises, parts types of clients. At the same clip, employees besides prefer to work in smaller concern squads because they find more ambitious work and better opportunity to see their thoughts adopted. Smaller squad besides help to further more sense of duty and achievement. Organizational construction should ease increased teamwork environment to see success and growing potency. During enlargement MFIs should make a dynamic and decentralised organisational construction to promote even assorted subdivision offices. In the beginning, decentalisation procedure may make some challenges in the signifier of administrative issues and pull offing growing for some period of clip. Therefore communicating must stay as an of import tool to pull off efficaciously.

HR Challenges at MFIs:

There are several HR Challenges faced by the most of practising HR Professionals in this sector as it is merely emerging sector and the handiness of work force with relevant experience is really limited. Harmonizing to an on-line study by ‘Microfinance Insights ‘ on Human Resources Challenges and Solutions ( February to March 2008 ) highlighted some of import HR issues like more employee turnover, staff keeping and enlisting and preparation as the biggest challenge[ 6 ]. The bing supply of human resources are more from NGOs sector, of course they will hold more NGOs orientation instead than Microfinance orientation. Hence, the professionalism in microfinance sector is really much limited. Furthermore there are no educational establishments offering relevant plans in the country with relevancy to microfinance.

The HR challenges in MFIs can be loosely classified into three degrees as

Sectoral degree challenges: as a sector, microfinance has extraordinary growing potency. But it is recognized by few participants who involved in this concern and few strategians who know the possible merely. Other people are mostly incognizant and skeptic about chances that lie before them. Microfinance being employees ‘ intensive industry, their interpersonal relationship and service quality to clients will do big difference in developing the organisational wealth. Otherwise it will consequence on shriveling borders on concern and deter the disbursement on human resources and eventually ensue both quality and measure of human resources suffer.

Organizational degree challenges: when organisations are turning quickly, the human resources are non increasing consequently. It leads to improper ratio of clients per officer to maintain costs down. Finally it will impact on low morale, get downing of turnover, MIS backlogs and diminution in portfolio quality. Sometimes, to scale-up operations and portfolio, it demands enlisting of new staff in big Numberss. Normally the hiring procedure found with cost in head and therefore hires less qualified people. This may digest up to certain extent, thenceforth the organisation faces the growing crisis.

Individual degree challenges: Most of the endowment peculiarly childs are loath to work in distant countries. Initially few may work with little MFIs and so travel on to higher paying occupations with bigger employers. MFIs at rural topographic points map with limited demands and the deficiency of initiation, preparation and skill sweetening remains a challenge. Employees may fight for growing and increases, limited exposure as compared to metropolis environment.

HR Challenges Pertaining to Human Capital Issues:

HRM section should guarantee to supply an effectual work force to run into the vision and mission of the organisation. HR Professionals have to explicate ideal HR policies and processs to convey right figure of people with right attitude and accomplishments in the right topographic point at the right clip. In order to this, most of the HR Professionals of MFIs will confront all authoritative challenges like

Recruitment of qualified staff

Training and capacity edifice

Pull offing turnover

Planing inducements

Fiscal restraints etc.

Today most of the caput huntsmans are confronting tough jobs to supply qualified staff for pull offing MFIs. It is a critical issue for every MFI in India and abroad every bit good. Concurrently it has been proven by several of import research study findings besides. Harmonizing to the Microfinance Banana Skins Report ( March 2008 )[ 7 ], the most urgent undertaking for microfinance establishments is “ Pull offing Quality ” . By repeating to this happening the respondents of ‘Microfinance Insights Survey ‘ rated that, human capital issues are the most ambitious to cover with. The survey revealed as 51 % of MFIs are confronting challenges refering to Human Capital issues as compared to fiscal issues ( 29 % ) , and proficient issues ( 15 % ) as shown in figure-2 below.

Figure – 2: Ambitious issues in MFIs

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Surprisingly, fiscal issues are non rated extremely as everyone expects in present microfinance market state of affairs which is going really competitory and demand more specialised cognition and faster scaling than of all time before. The study besides highlighted that enrolling qualified staff, offering relevant preparation and capacity edifice, and commanding employee turnover are the most hard issues because of its typical nature of concern. Harmonizing to Kibukuna Samuel from The Association of Microfinance Institutions of Uganda, “ Resources mobilisation for plan execution and advancing industrial criterions ” is their very of import HR challenge. In Indian micro finance concern context, talent keeping in MFIs for longer clip is a ambitious undertaking because the employees are more attracted by Bankss and they poach them without any scruples.

Challenges in Enrolling Right Peoples:

At present, MFIs are viing more with commercial Bankss and NGOs for happening appropriate endowment. For effectual operation of any MFI today, it is necessary to take in hunt of targeted enlisting for specialised endowment. The survey has clearly revealed the demand of endowment in three major countries of their importance. The first 1 is strategic minds with relevant experience in microfinance sector requires 63 % , which is the most ambitious country of concern. Second one is staff for basic operations need 21 % and the 3rd is strategic minds with the experience of capital markets are with 16 % as shown in figure- 3 below.

Figure- 3: Ambitious Positions to Recruit for MFIs

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Challenges in enlisting standards of MFIs:

Several research findings highlighted across the board of MFIs from the highest degrees to the lowest degrees of staff, the most of import standards in enlisting is approximately local cognition. Awareness of local cognition is ranked higher than holding direction grades, capital markets, international cognition and proficiency in local linguistic communication for all degrees of staff members.

Standards for C-Suite Recruitment:

Filling top-level places like CEO, CFO and COO can be hard for MFIs because of the complex accomplishments requisite in every place and the leading squad has to cognize about the parts of operation as it is for lower degree staff. This decisive factor conceals the demand for a direction grade, capital markets experience and international experience ( Figure- 4 ) .

Figure- 4: Standards for C-Suite Recruitment

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Criteria for Director Level Recruitment at MFIs:

Recruitment of Director Position besides resulted with similar necessitate of those C-Suite officers of MFIs. After the requirement of local cognition ( 57 % ) , international experience rated as really of import by 29 % followed by capital markers experience and holding direction grade by 22 % ( Figure- 5 ) .

Figure- 5: Standards for Director Level Recruitment

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Standards for Staff Level Recruitment:

For enrolling the staff-level places like subdivision directors and recognition directors, the demand for local cognition ( 55 % ) and local linguistic communication proficiency ( 54 % ) are really indispensable requirements followed by English linguistic communication proficiency rated really high as 52 % and old ages experience by 43 % ( Figure – 6 ) .

Figure-6: Standards for Staff Level Recruitment

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Issues and Challenges in Employee Motivation and Retention:

Incentives are one means to actuate the employees and cut down high turnover rates in organisations. Majority of the MFIs i.e. 57 % are utilizing pecuniary based inducements and 20 % are utilizing non-monetary based inducements like public acknowledgment for accomplishments, patronizing vacations and increased holiday yearss. Merely 9 % of the MFIs are offering ESOPs ( Employee Stock Option Plans ) as inducement strategies to their employees due to their complexness and nature of concern and deficiency of cognition on the portion of MFIs in administrating them.

Figure- 7: Types of Incentives

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To analyze more about the effects of incentive strategies on turnover, assorted types of inducements were cross-referenced with the MFIs ( Figure: 8 ) that cited turnover as a major job to cover with. The analysis revealed that 87 % of the MFIs are more concerned about turnover make usage of pecuniary performance-based inducements. Then once more, for MFIs that view turnover as a minor concern or non a concern at all, there is a higher use of non-monetary public presentation based inducements and ESOPs. The survey indicates a demand for the MFIs utilizing pecuniary based inducements to reorganise their incentive strategy policy.

Figure – 8: Employee turnover Perception Vs. Incentive Schemes

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Capacity Building through Training Programs:

Ongoing preparation plans are really of import for employees to construct required skill-sets and maintain them engaged. Most of the MFIs offer preparation at least one time or twice a twelvemonth and about 39 % of them offer it more than four times per twelvemonth. Many MFIs prefer to offer basic in-house preparation for freshly joined employees to supply general information about the company and merchandise cognition. It includes schoolroom preparation plans along with field work preparation as a agency of larning assorted bringing methodological analysiss of the micro finance establishment. A portion from this more in depth preparation plans will be organized in the countries of field monitoring, direction information systems ( MIS ) , accounting rudimentss for subdivision directors, demands appraisal, monitoring methodological analysiss, finance and human resource direction for managerial degree staff. A little figure of MFIs besides arrange visits to set up MFIs as portion of their preparation plans.

Addressing the gender spread:

Though microfinance concern gained popularity to authorise the adult females and adult females clients, the presence of adult females staff is non brooding. Harmonizing to the research about more than 25 % of all MFIs have less than 10 % adult females staff and merely 9 % of all MFIs have a staff comprised of more than 75 % adult females[ 8 ]. The survey besides highlighted that about 46 % of all MFIs have less than 10 % adult females in their direction squad and merely 3 % of MFIs have more than 75 % of adult females in managerial places.

Decision:

Constructing a solid and long permanent establishment is a really ambitious and multifaceted undertaking for the top degree direction every bit good as for HR-Department. But, HR is the most ignored map in Indian microfinance sector and HR planning is largely run on ad-hoc footing through quantitative in nature and used largely for finding new enlistings or publicities to gauge the salary disbursals. Other side this information would be utile for fiscal projections required to subject to the fiscal establishments for their loan proposals. The most critical issue in HR-Planning is happening right people for different MFI ‘s maps and their willingness to counterbalance adequately for people with relevant experience. There are really few people available with relevant experience because, microfinance sector has scaled up late and there are really limited preparation institutes or concern schools to churn out people with needed attitude and accomplishments set. The HRM section should guarantee to supply an effectual work force to run into the vision and mission of the organisation. In this way HR professionals have to explicate ideal HR policies and processs with mention to MFI concern to do available right figure of people with right attitude and accomplishments in the right topographic point at the right clip.