MicroCapital: Do you find that microfinance institutions (MFIs) tend to underinvest in human resources (HR)?
Rüdiger Meister: Definitely! Despite the efforts of many consultants in this field, the crucial role of HR management remains under-estimated. Technical assistance interventions, which often accompany investments into MFIs, tend to focus on discrete areas rather than following a holistic and structured approach to capacity building.
There is also a problem of short-term versus long-term thinking. In the short term, the MFI will function even if there are weaknesses in HR management. But in the long term, the MFI will have to pay for mistakes in areas such as recruitment or compensation.
MC: Please expand on how you see investors addressing these issues.
RM: Normally, microfinance investors conduct thorough due diligence before investment decisions are made. There is a common set of criteria used to evaluate each MFI’s soundness, entailing items such as vision, financial services, the management information system, information technology and sustainability. However, investors tend to prioritize financial data and undervalue “soft factors.” We have found that the maturity of HR management is as important to the performance of MFIs as risk management, information technology and governance. As we like to say, “Banking is people!”
We suggest MFIs create a list of HR “health indicators” relating to compensation policies, incentive schemes, organizational charts, recruitment processes, talent management, succession planning and employee satisfaction surveys. It is also important to have competency-based job descriptions, an objective performance measurement system and statistics on staff turnover. For each criterion, benchmarks are available. And for approaches the MFI does not yet practice, investors can provide structured capacity building assistance.
MC: Please share a few success stories.
RM: Luckily, there are many examples of good practice. Quite often, the HR departments of smaller MFIs are under-staffed, the personnel do not have the required expertise, or there is no HR department at all. Two good options are to outsource the HR functions or to partner with another MFI to build up the needed expertise together.
Another example is from an MFI in Eastern Europe. There was a sudden need to replace a member of the management board, but there had been no succession planning. As a result, the directors immediately began building up an internal talent management pipeline in cooperation with an external HR-consultancy company. When the MFI next needs to bring on new board members, it will be prepared.
A key challenge for some larger MFIs is extremely fast growth. For HR staff, this means increased recruitment, on-boarding and staff development requirements. For the C-suite, it may mean letting go of administrative and operational issues to take on challenges that are more strategic in nature. Senior management is responsible for supporting and developing middle management. This requires training; we can’t expect a branch manager who has been focusing on sales figures “automatically” to be able to act as a higher-level leader!
Rüdiger Meister is the Division Manager of ADG International, a Germany-based human resources consultancy specializing in serving cooperatives and other financial institutions. He will be a panelist in the session “Investing in MFIs: Importance of Human Resources to Achieve Impact” at European Microfinance Week.
This interview is part of a sponsored series on European Microfinance Week, which is held annually by e-MFP in Luxembourg. MicroCapital has been engaged to promote and cover the event on-site.
Sources and Additional Resources
European Microfinance Week 2017
http://www.e-mfp.eu/european-microfinance-week-2017/information
MicroCapital Coverage of European Microfinance Week Since 2012
https://www.microcapital.org/category/european-microfinance-week/
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