Investing in MFIs: the importance of human resources to achieving impact

  • Carmelo A. COCUZZA, European Investment Bank (EIB)
  • Rüdiger MEISTER, ADG International 
  • Adam BÖHM, Bank im Bistum Essen 
  • Malkhaz DZADZUA, Crystal Microfinance Organization, Georgia


Carmelo A. COCUZZA, from the European Investment Bank, introduced the session by highlighting that investors always include capital requirements in their due diligence, but often overlook human capital. He emphasised that, in the world of financial institutions, success greatly depends on human resources. Cocuzza added that this panel would discuss Human Resources (HR) from three perspectives: an MFI, an investor, and a consultant.

Malkhaz DZADZUA of the Crystal Microfinance Organization, offered an MFI's perspective on HR. He introduced Crystal, Georgia's leading non-bank MFI, which offers a wide range of financial services to the low-income population. In recent years, Crystal grew immensely, from 182 employees in 2012 to 851 employees in 2017. Dzadzua explained that, with this vast growth, staff training became a core component of Human Resource Management (HRM) to safeguard the quality of Crystal's services. In the same time frame, employee turnover increased excessively. The MFI's internal standard for employee turnover is 10%, but in 2017 this increased to 14%. Dzadzua explained that the growth in employee turnover was partly due to an increase in the ratio of employees vs. HR staff. To increase employee retention, the MFI decided to maintain a ratio of 100 employees per 1 HR member.

Dzadzua shared the evolution of Crystal's HRM with the audience. In 2009, the MFI approved its HR policy, which resulted in an autonomous HR department in 2013. In 2016, the MFI decided to switch to strategic HRM, thus developing an HR and Remuneration Committee which would give recommendations to the Supervisory Board on strategy and policy issues. In the next three years, the MFI aims to also improve talent management, increase the size of the HR department, offer career and succession planning services for its staff, and improve performance measurement.

Adam BÖHM introduced the cooperative Bank im Bistum Essen, a financial service provider with a strong focus on the German non-profit sector. Bank im Bistum Essen has invested in MFIs all over the world since 2007. Böhm gave an investor's perspective on HRM. He explained that HRM is the groundwork for the profitability of the operation, sustainability of the business model and avoidance of mission drift. As an investor, Bank im Bistum Essen poses three questions to an MFI: 1) Does the MFI ensure continuous staff motivation and commitment? 2) Does the institutional structure and organisational culture fit the current business model and the MFI‘s maturity level? 3) Are skills available for the implementation of the intended change?

Böhm added that staff motivation depends on an MFI's ability to empower its staff by providing monetary and non-monetary incentives, and by working with a clear vision that is shared by the staff. To improve the cultural fit of an MFI with its business model, Böhm suggested that, as an MFI grows, its board composition and organisational structure should change as well. As all MFIs deal with change, they should promote a strong innovative drive among their employees to deal with transformational processes.

Böhm shared insights to assess how an MFI answers these questions. He explained that MFIs should have well-structured documents at hand to speed up the credit process, such as HR and remuneration policies, training plans, CVs, strategic plan and staff surveys. A fluent communication with an MFI's staff can create trust in its capabilities and ability to distribute responsibilities.

Rüdiger MEISTER introduced ADG International, which offers training on strategic HR solutions and implements financial projects and exchange programmes at the international level. Meister shared several findings from MFI consultancies. MFIs commonly have a large customer base and many employees. Meister explained that capacity development (CD) is one of the biggest challenges for MFIs. Although it is clear which HR-functions are needed in an MFI, such as recruiting, training, performance measurement and incentives, the question remains: Who is in charge of executing these functions?

For investors, it is key that an MFI is a viable and profitable institution and can achieve its social targets. Although HR issues are part of their due diligence, the focus is mostly on individual HR functions and aspects and as an isolated view. Meister argued that investors should check which organisation unit takes overall responsibilities for HR, and how HRM is institutionalised. These elements are not commonly part of investors' due diligence.

Moreover, the size of the MFI impacts the HR department. He claimed that investors should consider thresholds regarding the development of MFIs. The structure and functions of HRM should be at level with the size of the MFI. Medium and large MFIs require adequately equipped HR departments that provide HR systems and tools. Meister concluded that including HRM at the strategic level of the business is a key success factor for performance of the MFI. He argued that HRM requires a higher attention from MF investors, and advised making HRM quality assessment an integral part of investors' due diligence.


A member of the audience questioned Meister's advice to consider thresholds. He wondered what this meant for banks, whether they should stop investing in small MFIs. Böhm confirmed that, as an investor, Bank im Bistum Essen has a higher exposure with larger MFIs than with small ones. However, Bank im Bistum Essen aims at investing in small MFIs in order to generate a higher impact by supporting the development of their HR departments. Meister highlighted that whether an MFI is small, medium or large, it is important to keep in mind that it needs to pay attention to the HR issues and to equip its HR department differently - according to the respective level.

A participant from the audience added that investors should lend to small MFIs, so as to help them grow. Small MFIs would need to be made aware of the importance of HR, to ensure that the HR department can cope with the growth of the MFI. Cocuzza added that in financing small MFIs, investors should also provide technical assistance, to assess the needs of the MFI and to enhance its HR capacities.

Patricia Richter, of the International Labour Organisation (ILO), thanked the panel for their inputs. She added that in the Social Performance Task Force (SPTF), they discussed this issue extensively: what can you ask an MFI to have in terms of HR? She proposed that MFIs would compare their HRM with those of manufacturing companies in Africa. She argued that MFIs are lagging behind these manufacturing companies. Richter added that they should push MFIs further in HRM and proposed to take this up with the SPTF.

An audience member asked Dzadzua how Crystal analysed the drivers of growing employee turnover, beyond the ratio of employees and HR staff. Dzadzua responded that the size of the HR department was one part of the analysis. Another part was the limited role of the HR department in HR management function, which is now changing from administrative to strategic level. Crystal also received feedback from staff and the HR department that confirmed their findings.

Another discussion point revolved around training as a form of employee retention. An audience member questioned the idea that training is a form of effectively giving incentives to its staff. She argued that only systematic training qualifies as a form of retention. She concluded that MFIs should look beyond typical training activities and beyond CVs to build competencies of their staff and to motivate them.