In MicroCapital: HR Challenges Within MFIs at European Microfinance Week: “Banking Is People”
In anticipation of European Microfinance Week, 29 Nov - 1 Dec, our media partner MicroCapital takes a look at one of the upcoming sessions "Investing in MFIs: Importance of Human Resources to Achieving Impact" with Rüdiger Meister, ADG International:
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.