Human Resource Development in Microfinance Institution

September 08

By

Zahid Ali Mubarik

MA International HRM (UK), MBA HRM (PAK)

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Human Resource Development in Microfinance Institution

Preamble Microfinance (MF) industry, which began in 1970 with pilot micro credit programs, providing small loans to poor and low income household, has seen a remarkable growth in Asia and pacific region in the last three decades. In Pakistan, over a period 1999-2008, it has witnessed an unprecedented expansion from a client base of just 60,000 to a 1.5 Million borrowers. This is an outcome of a focused strategy and investment on the part of government of Pakistan and a proactive response by all stakeholders including donors, regulator, wholesalers, retailers, network and clients. The government target to reach 3 million active borrowers by 2010 and 10 million in long term gives a clear view to external and internal stakeholders. MF industry, which has evolved primarily out of the non-profit development community, is gradually adding bits of expertise from the commercial world. Because of this gradual formalization, microfinance institutions (MFIs) are yet not fully structured, and therefore following the most current principles from corporate experience. For microfinance to fully establish itself as a pioneering industry, it has to unite the successful practices and behaviors of the business community with the social mission of the development world. According to survey report on “HR challenges and solutions in Microfinance” April 2008, issued by Microfinance Insights India, people matters are most challenging, in comparison to financial and technology matters. After recruitment, the training & capacity building figure out as a predominant factor in preventing turnover in an MFI. Hiring and retaining good quality human resources is also one of the targets given to microfinance industry by the government of Pakistan. Asian Development Bank in its April 2008 report on top 100 Asian MFIs highlights nine performance metrics, which include outreach-borrowers, outreach depositors, market penetration, scale, growth, profitability, efficiency, productivity and portfolio quality. Human development in an MFI depends upon its chosen area of performance. Human resource development challenges in an MFI are not all that different from those of other companies; however, working with populations at the bottom of the pyramid, particularly in country with varying political and economic climates is bound to generate challenges unique to MFI. Human development relies mainly on training & developmental activities. Regardless of industry, training as a subject is prone to certain criticism, like being reactive to present needs, rather than building capabilities for the future; transferring large amounts of information rather than increasing the knowledge of participants; remaining detached from the context in which work is produced; and lacking the supporting processes needed to put new ideas into practice. In this article, human resource development in MFI has been viewed holistically. Some of the concepts are equally applicable to every organization including MFI. Significant among those are movement from training to learning concept, its linkage with business strategy of the organization. The aspects specific to MFI include treatment on induction, promotion, ongoing professional development, including development of senior managers.

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Change in Training Concept In an era of change and opportunity, approaches to training have grown in importance, broadened in scope, and more sophisticated in method. Once the object of training would have been the individual employee, and the training method would involve teaching. Now, the picture is much more complex. Training may think of organizations as well as individuals being capable of ‘learning to learn’; based on the belief that “endless learning opportunities exist at the workplace”. The Chartered Institute of Personnel Development (CIPD) UK promotes a concept of paradigm shift from ‘Training to Learning’. Under this new model, the line manager is charged with additional responsibility for development of subordinates. This calls for a climate at workplace where the people search for the knowledge every moment; through routine exchange of information, peer group learning, coaching, mentoring, on the job training, reading functional manuals, consulting professional magazines/ websites and other resources. This is a notion of environmental scanning giving opportunities for intentional as well as accidental learning. For training department to facilitate learning, this is a departure from PUSH to PULL strategy.

Adapted from “Change Agenda-Training to Learning. www.cipd.co.uk This model is a ‘progressive movement from the delivery of content to the development of learning capabilities as a people development strategy’. Any organization that facilitates the learning of its members, constantly transforms itself and its context. The learning model is bound to have implications on future profitability, delivery of services, and role of people management and development in an MFI too. HRD alignment with Business Strategy According to Wilson (2005), Training & Development is traditionally a function of human resource department. It follows a classic training cycle, identifying training & development needs, planning and designing training, implementing training and evaluating it. Using above cycle, organizations may fall under three categories:

• Those who undertake piece meal training which is typically course based and not explicitly linked to the overall vision and goals of the organization.

• Organizations, where training and development provision is derived from he business plans and objectives, and is very much downstream of strategy.

• Those who have a strategic human resource development (SHRD), which is more

Training An instructor led, content based intervention, leading to desired changes in behavior

Learning A self directed, work based process, leading to increased adaptive potential

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holistic. The belief that processes of organizational change occur through planned learning to ensure that individuals and organizations are equipped with the skills and knowledge needed to deal with the present and to create the future.

SHRD is about developing organizational structures, processes and styles, which enable mangers and employees to allow time to draw on their experience, question existing approaches in terms of their efficacy, debate, challenge, air conflicting ideas and experiment without reproach. No one disagrees with the view that a strong link should exist between the human development and business strategy of the organization. The problem can only arise, where HRD specialists are not involved at strategic level of decision making, consequently the business strategy is not clearly be apparent to them, and therefore, logical deductions about appropriate training and development interventions are difficult to make. Another important aspect is that, financial resources available for the training and development of employees are never unlimited, necessitating decisions about where to deploy resources to maximum effect. Such decisions can only be made if those responsible for HRD are clear about the organization’s strategy and priorities.

Induction Training Churchill (1997) report on Managing growth: The Organizational Architecture of Microfinance Institutions signifies that the foundation of any MFI lies at the locus of interaction between the institution and its customers. The role of front line staff assumes critical importance. Orientation training plays a vital role in ensuring that new loan officers understand the MFI and buys into it psychologically. They embrace to MFI’s values, identifying core elements of its culture and given a new sense of identification with MFI. During the orientation training, an explicit message should be given to new comers by communicating MFI’s mission, strategy, and objectives; particularly the behavior expected from them to achieve those goals. A successful MFI needs to indoctrinate employees into its core ideology, and a sense of elitism so that new employees feel they are joining something that is special and superior. After initial orientation phase, an MFI should never rush new entrants to create large portfolio. A good strategy can be to put them on mentorship program, followed by on the job training. Duration of this program may vary depending upon the complexity of business. This allows new staff to learn the technical aspects of the job and the tricks of the business from experienced personnel. In microfinance, many of the skills of field staff, such as client selection and delinquency management, can be learned best through experience; however mentorship and on job training play a fundamental role in this regard.

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Training on Promotion An MFI needs to see that, when staff is promoted, they are well trained for their new responsibilities before assumption of responsibilities. This may comprise of three stage development. In their preparational development for new role, they need to learn new skills for higher responsibilities. Transitional development may include timely and focused coaching or mentoring support. Finally in their role development – again they need facilitation by superiors while adjusting to new demands. MFIs that promote from within make the transition easier. MFI also needs to be aware of the pitfalls of promoting people into positions that are above their heads and consider the advantages of bringing new perspectives into the company. A fresh injection of people at all levels can avoid people becoming in-bred.

Continuous Professional Development Staff learning is an ongoing process throughout the entire relationship between the employee and the MFI. Ongoing learning is required to help employees grow as business grows. This involves planning to identify the new skills that employees need to fulfill personal and corporate objectives. Learning may also involve cross-learning so people can perform a variety of jobs. This can reduce the business’ vulnerability to absenteeism and attrition, thus creating flexibility. Cross-learning can also enhance the ability of staff to participate meaningfully in redesigning work procedures to accommodate growth because employees can see the work environment from various perspectives. Staff rotation is another instrument which can facilitate the transfer of innovations between branches and assist in preventing fraud. This is despite the fact that building long-term relationships with the clients improves the quality of business and has a positive effect on delinquency management.

Senior Mangers Development

CIPD UK is of the view that development of senior managers is crucially important for promoting a learning culture in the organization. Indeed any idea of creating a learning organization or getting senior management support for learning at lower level can be irrelevant without senior managers themselves seriously and systematically addressing their own learning needs. Senior managers are often sensitive to their status and see their development needs as different; and therefore may reject any standardized approach for training. They see training as an activity for more junior people and are likely to resent

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the idea that they can be subject to generalized training courses. The neutrality of the term 'development' usually appeals to them. When senior managers are not themselves committed to their own development, they may act as a stumbling block in creating a learning climate in an organization. Hence there is a definite requirement of taking care of their constant development. Senior managers often need highly refined leadership and corporate politician skills.

HRD can assume the brokerage role - advising on their development opportunities, and fixing it so that they can avail such opportunities. A simple model for on the job development is to pair up two senior managers. One spends a reasonable time following round the other and then there is a de-briefing where the shadower can give feedback to colleague what he/she observed. The roles can be reversed subsequently and both parties can learn from the process. This is a highly cost effective learning mode but it does need careful organizing.

Criticality of Training Function Training activity is a sandwich, between recruitment and performance management function. Training can act as force multiplier, if the recruitment section hires people with specific traits and abilities that are compatible with the MFI culture. Similarly incentives also play an important aspect of staff development. Economic democracy (a share in prosperity or otherwise of organization) helps in the growth of MFI. If trained people are frequently leaving the MFI, then probably the MFI is subsidizing the training cost of other firms. Another consideration in this regard is that people are not motivated by their paychecks only; as money is never a substitute for esteem, pride, and dignity. MFI needs to look for right balance of monetary and non-monetary incentives, including base salary, individual/ group-based rewards, staff development opportunities, challenging work, recognition, and opportunity to manage themselves, participation in corporate decision making, promotional opportunities, and most importantly professional and personal growth.

Role of Line Managers There is something rare than ability, it is the ability to recognize ability (Elbert Hubbard). This highlights the role of line mangers, because they are intimately involved in skill gap identification of subordinates. Since the performance appraisal is one of the bases of training need assessment, line mangers can effectively use this tool for development of staff. Wilson (2005) is of the view that during the appraisal process, the appraiser need to concentrate on the future instead of past, provide feedback on behavior rather than personality, focus on improvement rather than punishment, base comment on information instead of belief, secure commitment instead of compliance, extend active support instead of being directive, and make the appraisal person centered rather than form centered, with a philosophy of “how can we benefit” instead of “what I get from this” process.

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Management and communication style Management and communication style is another factor in the growth of employees in an MFI. This aspect reinforces the earlier theme of strengthening the role of line manager as an institution. Line manager is expected to act as a facilitator rather than boss, seen as a “servant leader” helping subordinates in achieving results and devoted to their personal development. This is doable by focusing on guiding; energizing, motivating, mentoring, facilitating, problem solving, and empowering employees to reach their potential. When an MFI increasingly expects line managers to undertake learning and development activities, it should also make the rewards for doing so readily available. Their commitment and buy-in is a pre-requisite to learning and development at the workplace. Chief executive’s visibility in training sessions has very positive implications, sharing with employees, the vision for the business, how employees role fits into the bigger picture, and what benefit they would draw if they are committed to making that vision a reality.

Critical Success Factors

MFI, like any other organization, does not have unlimited financial resources for developmental activities. Likewise, not all of the gaps in knowledge, skills and attitudes are urgent, to be filled in a short-term timescale. Debate with senior management can give guidance on which gaps are most critical. HRD can then prioritize the learning needs and decide where to deploy these resources for maximum effect. The process needs to take a holistic view of developmental requirement by conducting learning need assessment at individual, departmental and organizational level. Conclusion In a rapidly changing and increasingly knowledge-based economy, competitive advantage is built where individuals actively seek to acquire the knowledge and skills that promote the organization’s objectives. MFIs that have the capacity—including a proven lending methodology, a well-managed staff learning program, an effective information system, access to large volume of loan capital, and the administrative capacity to process volumes of applications efficiently; are probably ready to achieve economies of scale in operation. HRD interventions that are explicitly linked to MFI business requirements evidently stand the best prospect of gaining acceptance. Change in training concept, carefully crafted training on induction, promotion, ongoing professional development of all staff including senior member, efficient utilization of training resources and sound interfacing of training with recruitment and performance management can pay a great dividend in this regard.

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Bibliography

• 2007 MIX Asia 100: Ranking of Microfinance Institutions, issued by Asian

Development Bank (ADB) April 2008.

• Best Practices and Standards: BWTP, Asia Resource Centre for Microfinance.

• Change Agenda: Training to Learning available at. www.cipd.co.uk

• Human Resource Challenges and Solutions in Microfinance: A survey report

issued by Microfinance Insights India April 2008.

• J. P. Wilson (2005) Human Resource Development. Kogan Page India.

• Managing Growth: The Organizational Architecture of Microfinance Institutions

by Craig F. Churchill, ACCION International May 1997.

• MicroWATCH Jan-Mar 2008 issued by Pakistan Microfinance Network (PMN).

• Pakistan Microfinance Review 2006 issued by PMN.

• The Micro Banking Bulletin: Spring 2008 issued by Microfinance Information

Exchange (MIX).