The impact of employee turnover on the financial performance of microfinance institutions: A global evidence

Abstract

Microfinance is a preferred development tool in many developing countries around the world; however, the industry has been facing many challenges in recent years, including the attainment of financial sustainability. Therefore, this study is aimed at investigating the effect of employee turnover on the financial performance of microfinance institutions (MFIs). The study utilized unbalanced panel data of 1561 unique MFIs from 2010 to 2018. The data were then analyzed by conventional econometric techniques such as the pooled ordinary least squares, random effects model, fixed effects model, Hausman–Taylor, and the two‐step system generalized method of moments. Considering the linear relationship, it was discovered that employee turnover has a negative effect on the financial performance of MFIs. However, this relationship is dependent on the proxies of financial performance, legal status, location, profit orientation of the MFIs (for subsample analysis), and the technique(s)/model(s) employed in the analysis. Furthermore, the study did not find empirical evidence to support the quadratic relationship between employee turnover and the financial performance of MFIs. The outcome of this study advances important policy implications for concerned stakeholders.

Employee turnover and the social outreach (breadth): international evidence from the microfinance industry

“…The findings may indicate that the level of turnover may not have reached the threshold in our sample, resulting in the inexistence of a significant non-linear relationship (Model-5, Table 3). This finding is consistent with the study of Mia et al (2022a), which found the non-linear effect of employee turnover on the financial performance of MFIs. While these findings contradict most of the existing literature, they can be explained in several ways.…”

“…It can, therefore, be concluded that the body of academic discourse on employee turnover is growing but limited in the microfinance context. Besides, except for the recent study of Mia et al (2022a), the majority of the previous studies have only explored the turnover-financial performance nexus in the context of industries other than MFIs [ (Hancock et al, 2013) and the reference list therein]. In their study, Mia et al (2022a) found that employee turnover has a negative effect on the financial performance of MFIs, although the outcomes vary with the modelling, sub-sample and other factors.…”

“…Besides, except for the recent study of Mia et al (2022a), the majority of the previous studies have only explored the turnover-financial performance nexus in the context of industries other than MFIs [ (Hancock et al, 2013) and the reference list therein]. In their study, Mia et al (2022a) found that employee turnover has a negative effect on the financial performance of MFIs, although the outcomes vary with the modelling, sub-sample and other factors. Considering the "low tech-high touch" nature of microfinance operations whereby employees are responsible for the identification of clients, loan screening and disbursements, collection of instalments and after-service monitoring, depletion of human capital due to employee turnover is expected to take a toll on the overall performance of MFIs.…”

“…However, whether the effect of employee turnover on the breadth of outreach of MFIs is linear or non-linear is still unclear. Thus, further investigation is needed to verify the outcome of Mia et al (2022a) and establish whether or not employee turnover is beneficial to the outreach objectives of MFIs [1].…”

Capital Adequacy and Financial Performance of Microfinance Banks in Kenya

“…Across several developing countries, the microfinance model is the preferred development tool (Mia, Ahmad & Halim, 2022). Several African countries have experienced significant growth in the microfinance sector and it was documented that more than 100 million customers take up micro loans across the region (Madialo, 2022).…”