Grameen and Continuum partner to address talent gap in microfinance

Last week I had the opportunity to attend a panel discussion at Continuum, the design consultancy based in Newton, Massachusetts, on “Building Leadership in the Microfinance Sector.” Moderated by Ed Milano from Continuum, the panel consisted of a cross functional team that was studying the issue of talent acquisition and management in the microfinance sector and consisted of Peg Ross, Director of the Human Capital Center at the Grameen Foundation; Lyndon Rego, Director of the Innovation Incubator at the  Center for Creative Leadership; Lynn Pikholz, President of Shorecap Exchange; and Anna Muoio, Principal with the Social Innovation practice at Continuum.

The presentation and discussion centered around some very preliminary findings based on an initial field immersion trip and set the stage for  more detailed field research to be conducted later this year. I have outlined some of the observations that were shared at the meeting and my personal observations and reactions to what I heard.

Background

To set the stage for their research in India, the team outlined some of the drivers that compelled them to focus on the issue and the geography. It is estimated that over 155 million people are served by microfinance around the world, with over 80 million in India alone. (The Wall Street Journal states microlenders in India reached 22 million clients while the formal banking sector reached 54 million poor and underserved clients). The unserved market for microfinance has been estimated to be around $250 billion worldwide. With over 1 billion people living on less than $1 a day, there is vast untapped market to provide financial assistance to this sector.

Unlike other approaches to poverty alleviation, such as education for example, microfinance’s positive impact on livelihoods results in a decreasing need for investment over time. With other approaches the level of support or investment has to be renewed each year or increased to keep up with growth.  

To keep up with the demand for microfinance, most institutions are growing at breakneck speed with average growth of 50 to 100 percent per year! As a result, these organizations are hitting the wall when it comes to staffing up and growing their organizations. To help understand the basic issues and to come up with potential solutions to this looming bottleneck, Continuum together with Grameen Foundation and others launched a study that came back with some preliminary observations.

Top Line Lessons from India

The five key findings from the initial study visits were:

• MFI leaders are challenged to balance multiple agendas: profit, growth and social mission. Two trends that are driving this is the conversion of these institutions from NGOs (Non-Governmental Organizations) to NBFCs (Non Banking Financial Corporations) and the access to commercial capital. The demands for financial return and growth are at times at odds with their social impact mission.
• The growth of the microfinance sector is outpacing its human capital capacity. Despite the newly found cachet, the sector is still struggling with recruiting employees and in retaining the existing talent pool. This is compounded by the accelerated growth rates.
• The talent challenges are most acute at the middle manager level. Like most NGOs and non-profits that are led by charismatic leaders, microfinance institutions are finding it difficult to both backfill behind the top level leadership and to grow and train the middle tier of management.
• Standardization and personalization are twin challenges. To keep up with high growth, most institutions are lowering costs by standardizing processes and products. Yet the very nature of microfinance is driven by high touch, personal interactions. Trying to achieve a balance between the empathic skills required and while maintaining a focus on operational efficiencies is a tough training tradeoff.
• Training and development is hindered by the lack of resources. Freeing up time and resources to provide the necessary training is a challenge for growing organizations. In addition, the existing academic institutions and programs are not adequately addressing the skill set needs of the MFIs.

The study will continue this summer and hopes to outline the appropriate types of leadership programs that would help support the growth of this sector. The initial findings point to the need for both functional skills and leadership development training.

My two cents

It was refreshing to hear the different perspectives presented at the panel. Continuum has staked a place with its Social Innovation practice. Shorecap Exchange,  a spinoff from pioneer Shorebank Corp, and supporter of microfinance and, for me, the first time hearing from the Center for Creative Leadership.

While the issues identified seem universal and obvious, I feel there are a couple of fundamental questions that need to be asked while undertaking such a study.

• Reasons for Growth: The basic premise of the study is that there is a looming talent gap due to the rapid growth in the microfinance sector. Yet one needs to ask what is precipitating this growth. The microfinance sector has been around for over three decades and has plodded along at a steady pace. The last few years has seen a dramatic pickup in interest in the sector starting with the UN declaring 2005 as the Year of Microfinance and Prof. Yunus winning the Nobel Prize in 2006. With this new focus mainstream capital and private equity realized the new found opportunities in this sector and have made major investments in key players, like SKS in India. The sector accounted for 40 percent of all private equity deals in India between 2008 and 2009. The introduction of commercial capital increased the drive to growth and to enhance profit margins.  As the “Building Leadership…” report points out, there are over 3000 MFIs in India and over 90 percent are satisfied to maintain their social focus by serving their local area with 10,000 or fewer customers. The growth in the sector is being driven by a few large organizations that are all trying to scale and be the prime mover in this sector. An interesting report by Daniel Rojas and Sanjay Sinha in Microfinance Focus highlights some of this lopsided growth.  So the question is does this talent gap exist for a few, market driven institutions or is it as widespread across all MFIs? Or is the lack of bandwidth in smaller MFIs hindering their growth because they cannot address the longer term human capital needs?
• Market forces should recalibrate costs: If we assume that there is a real talent gap in this sector and the current institutions are faced with a shortage of talent, the next question one need to ask is why has not the market corrected for this imbalance. If one assumes that this is indeed a high growth, high potential market as the sage private equity investors surmise, then one would expect that natural economic forces would force up salaries, attract the requisite talent and provide the right incentives, such as equity or profit sharing, to retain the talent. Why is this not happening? One hears anecdotally that the institutions cannot attract well trained recruits as they did not want to work harder for less pay. Why haven’t payscales increased to attract talent? An argument may be made that doing so will increase costs, but this should be built into the business model for it to be viable for an investor. Else they are expecting a market driven return based on some poor schmuck being socially motivated to give up his or her market rate of salary to work in an MFI. This is not likely sustainable in the long term. Will MFIs share their profits or readjust their costs to sweeten the incentives for its employees?
• Mid level talent shortage is NGO wide and global: While this study has identified a talent gap issue, it is not something unique to the microfinance sector. If you talk to non-profits or NGOs both here in the US as well as around the world, one of the biggest issues affecting them is attracting and retaining mid level managers. Most small and mid sized organizations have a tough time making the transition from a charismatic leader driven organization to a professionally managed one. A profit generating organization like a microfinance institution, specially the ones setting themselves up to eventually go public, has additional financial levers to help motivate and attract talent to their institutions.

In conclusion, the study has highlighted a number of issues that the microfinance sector faces with talent acquisition and retention as it strives to satisfy the needs of the large and growing market. One hopes that the study participants will view it with a wider lens that challenges some of the base assumptions within the sector.