DI-UMONS : Dépôt institutionnel de l’université de Mons

Recherche transversale
(titres de publication, de périodique et noms de colloque inclus)
2017-04-25 - Colloque/Présentation - communication orale - Anglais - 18 page(s)

Godfroid Cécile , Radermecker Laure , "Staff Turnover and Productivity: The Case of Microfinance." in 32nd workshop on strategic human resource management (EIASM), Lucerne, Suisse, 2017

  • Codes CREF : Economie des PVD (DI4375), Management (DI4360)
  • Unités de recherche UMONS : Economie et gestion de l'entreprise (W742)
  • Instituts UMONS : Institut de Recherche en Développement Humain et des Organisations (HumanOrg)
  • Centres UMONS : Microfinance (CERMI)

Abstract(s) :

(Anglais) Microfinance is defined as the extension of financial services to poor clients or to clients with a low level of income, who are often excluded from formal financial services (Hudon and Sandberg, 2013). Microfinance institutions face different challenges as they have to reach a double bottom line objective: increasing social performance while being financially sustainable. Within these numerous challenges, human resource management represents a main one (Hudon, 2010). It is indeed a crucial issue for microfinance institutions to retain loan officers who are qualified (Sarker, 2013) and desire to contribute to the double mission of their organizations. According to survey conducted by Microfinance Insights (2008), 46% of interviewed MFIs reported to be concerned by turnover. Furthermore, the average staff turnover for the MFIs available on the Mix Market is of 24% for the period 2008 – 2010, a percentage that appears to be particularly high. Some authors have highlighted the main reasons of the turnover of loan officers, who represent crucial employees in the microfinance sector as there are the key link between the client and the microfinance institution (Ito, 2003). According to Sarker (2013), the role of loans officers requires dealing with high pressure. First, they are in a challenging situation when it becomes difficult to deal with “their client nurturing role” and “the other tasks assigned by their home MFI” (Dixon et al., 2007, p.49). Indeed, as reported by Gray et al. (2013) and Sarker (2013), loan officers find their role challenging as they try to balance their role of increasing their clients’ welfare while continuing to follow the policies and rules of the institution (Gray et al., 2013). The results of the study realized by Gray et al. (2013) show that even if the credit officers try to meet the clients’ needs with “compassion and understanding”, “their hands are often tied” (Gray et al., 2013, p.10). Particularly, the task of recovering debts puts the loan officer in an uncomfortable situation (Kar, 2013) if he/she is affected by the wellbeing of the borrowers and increases the pressure that he/she encounters (Dixon et al., 2007, p.61; Sarker, 2013). Dixon et al. (2007) show, in their study achieved in CETZAM, a microfinance institution in Zambia, that “loan officers complained that management did not realize how difficult and time consuming the ‘delinquency’ exercise actually was”. Moreover, when clients are unable to reimburse, they also face pressure to pay back the borrowers’ arrears with their own wage (Armendariz and Morduch, 2010; Sarker, 2013). Credit officers also feel tensions because the microfinance institutions often “try to reduce staff costs” (Sarker, 2013, p.85) which represent more or less “half of the institution’s input costs” (McKim, 2004, p.2). Furthermore, they have to achieve the strict and sometimes unrealistic quotas fixed by the microfinance institution (Sarker, 2013), like the size of the loan portfolio or the number of clients. Another source of pressure can come from the fact that credit officers work for the most part of their time (75%) out of their office (Holtman and Grammling, 2005; Sarker, 2013). So, in the evening, when they come back to the branch, they sometimes have to stay late (Sarker, 2013) to achieve their administrative tasks. Moreover, as they are often far from their office, they have also to take essential decisions even if they do not receive the approval of their manager (Gray, et al., 2013), and that can also increase the pressure they face. Finally, job opportunities are highly restricted (Montgomery, 1996; Goetz, 2001; Ahmad, 2002). A study achieved by Alam (2015) summarizes the main causes of turnover in microfinance as the following: unsatisfactory compensation as it is hard for microfinance institutions to set up an adequate incentive scheme (Labie et al., 2015), insufficient career growth, job stress and family balance, bad work environment, lack of social recognition of the job, health and family reasons, and forced termination. MicroRate (2014) highlights that even if MFIs try to find some solutions to face this issue, namely by increasing salaries and offering training, they do not succeed to solve this major problem. While this topic appears to be particularly interesting for practitioners, the consequences of staff turnover remain poorly documented in the microfinance literature. Following the lack of scientific articles on our topic of interest, we focus on the literature in human resource management which devotes a growing interest to the effects of turnover (Meier and Hicklin, 2008; Ton and Huckman, 2008; Mohr et al., 2012). However, the impact of staff turnover on organizational performance remains unclear. To start with, we present the theories and arguments in favor of a negative effect of turnover. In this respect, the concept of tacit knowledge is particularly relevant. This concept is defined as ‘the set of ‘mental models’ employees have about the organization and its procedures’ (Mohr, et al., 2012, p.217) which is particularly slow to acquire (Kogut and Zander, 1992; Grant, 1996) as it is usually obtained through work experience. First, for the human capital theory (Hurley and Estelami, 2007), workers’ skills and tacit and explicit knowledge represent an important valuable resource for the organization (Mohr et al., 2012). Therefore, when an individual leaves the organization, the tacit knowledge he has acquired is lost (Reilly et al., 2014; Hale et al., 2016) and will be hardly recovered rapidly (Messersmith et al., 2014). Second, for the social capital theory (Shaw et al., 2005), it is not workers’ skills and knowledge that are considered as a valuable resource, but interpersonal relationships. This theory argues that tacit knowledge will be easily transferred between people who are closely related socially (Hansen, 1999; Uzzi and Lancaster, 2003). However, in the case of workers’ departures, this social capital is destroyed (Dess and Shaw, 2001; Ton & Huckman, 2008) and therefore the transfer of information is interrupted (Boudreau and Berger, 1985; Huckman and Pisano, 2006; Kacmar et al., 2006; Call et al., 2015; Hale et al., 2016). All the costs incurred by organizations when facing staff turnover are shown in a framework suggested by Tziner and Birati (1996) and based on Cascio (1991)’s turnover costing model. The first category includes the direct expenses faced by the organization linked to the replacement process such as the cost and effort for the recruitment, training (Darmon, 1990; Hom and Griffeth, 1995; Zhang, et al., 2012) and socialization process needed for new employees. Socialization is defined as a “process of acquiring the relevant information that employees must know in order to adequately perform their jobs” (Tziner and Birati, 1996, p.115). This process is particularly time - and energy - consuming for the colleagues and the supervisor of the new employees (Morrison, 1993). The second reported category of costs is constituted by the indirect costs and losses incurred by a break in the production and sales. The third one, “the financial value of the estimated effects on performance” (Tziner and Birati, 1996, p.116) is caused by the lack of will (Hom and Griffeth, 1995) of the remaining employees. Besides these three types of costs, (Tziner and Birati, 1996) report additional indirect losses to the firm like the expenses for workers’ period of overtime, the financial value of the loss of clients due to their dissatisfaction regarding the delayed delivery period, and finally the turnover effects of moral when good performers are leaving. Based on these arguments, most of the empirical studies highlight a negative effect of turnover on different performance indicators such as customer service (Ton and Huckman, 2008; Mohr et al., 2012) and profitability (Kacmaret al., 2006; Hurley and Estelami, 2007; Ton & Huckman, 2008). While negative effects of turnover are the most common results obtained by scholars, positive effects can also occurred, as underlined by Dalton et al. (1981). Different reasons may explain this positive impact of turnover. In this respect, Williams (1999) highlighted the existence of a functional turnover, referring to “an exit from an organization that is beneficial to the organization” (Price, 1999, p. 392). Turnover may be particularly beneficial when those leaving the enterprise are the less performing or less committed employees (Allen and Griffeth, 1999; Mohr et al., 2012). Moreover, according to some organizational psychologists, effort tends to be higher for new employees than for older ones (Staw, 1980; Ton and Huckman, 2008). Turnover can also enable a better employee-organization fit (Jovanovic, 1979). Finally, it also represents a source of innovative thinking and of new knowledge (Dalton and Todor, 1979; Abelson and Baysinger, 1984). Firms offering services that necessitate a close relationship between the firm and the client appear to be interesting to examine when analyzing the consequences of turnover. This motivates our choice to focus on the microfinance sector. Indeed, in microfinance, loan officers have to develop a tied relationship with their clients in order to acquire soft information, what is needed for serving poor people without collateral. Soft information is “the information about character and reliability of the firm's owner, and may be difficult to quantify, verify, and communicate through the normal transmission channels of a banking organization” (Berger and Udell, 2002, p.33). When a loan officer leaves the organization, either the clients decide to leave the microfinance institution because the fidelity to the loan officer is more important for them than the fidelity to the institution, either they remain in the institution but may face more difficulties to obtain a credit renewal or may be less willing to repay. Indeed, the impact of employee turnover on clients may be especially problematic when the transfer of soft information about the client from the leaving employee to his sustitute does not occur easily. In this regard, Drexler and Schoar (2014) analysing a bank offering credits to small business in Chile, show that, according to the type of leave (sickness, resignation, maternity and dismissal), the impact of staff turnover on clients differs. Indeed, when the leaving loan officer has enough time and the wish to transmit information to his replacement loan officer, the impact will be lower. In order to contribute to the debate on the impact of staff turnover on performance, we will focus on the following question: What is the impact of microfinance loan officer’s turnover on his productivity, on the performance of the branch where he works and on his clients? To answer our research question, we examine a microfinance institution in Latin America founded in 2008 offering only credit. This institution has an actual portfolio of around 500,000 clients and 55,000,000 euros. We pick this case because of the high turnover percentage of this microfinance institution that reaches 50% in 2016. Our empirical study involves both quantitative and qualitative data to better understand the phenomenon of staff turnover in microfinance. Regarding the quantitative analysis, our database is composed of data regarding features of active and former loan officers from 2010 to 2016, and data on clients and on their credits. To conduct this quantitative analysis, we have decided to apply the context-emergent turnover theory (CET). This will enable us to consider the influence of staff turnover in a dynamic perspective. This CET theory has emerged recently (Nyberg and Ployhart, 2013). It focuses on the impact of turnover on performance at the unit level within a dynamic temporal system (Reilly et al., 2014; Call et al., 2015; Hale et al., 2016). It envisages turnover within flows of human capital resources (Call et al., 2015) and considers that the timing of action and reaction within this flow influences the duration and the magnitude of the impact of turnover on performance (Reilly et al., 2014). Based on this theory and on team adaptation theory, Hale et al. (2016) argue that we should consider two different phases when analyzing the impact of turnover on team performance: the disruption and the recovery steps. They showed that as a first step, a turnover event is directly followed by a decreasing branch performance. Then, after 10 or 11 months, branch performance starts to increase. As for Call et al. (2015) who also apply the context emergent theory, they demonstrated that it is important to consider changing turnover rate and not only static turnover rate. They explain that, when considering branches with the same turnover rate, the performance of the branch with a increasing turnover rate will be more negatively affected than the one with a stable rate. In this study, we will try to examine how the CET theory can be applied in different branches of a microfinance institution. Furthermore, our database gives us the opportunities to distinguish the different reasons of leave (voluntary or involuntary), and therefore to examine if the effect on the productivity and on the performance of the loan officer and the branch in which he works varies according to the type of leave. Regarding the qualitative analysis, we conducted 60 interviews lasting in total 50 hours with clients, active and former loan officers, branch directors, and managers. Additionally, we realized some questionnaires for which we obtained 59 answers for clients and 51 answers for loan officers. This qualitative analysis will offer a better understanding of the clients’ feeling about turnover and of the different factors that can influence the decision of a loan officer to leave the organization.