Unitus-Hewitt survey on microfinance reveals strong revenue growth

Microfinance Monitor, June 6, 2010 – Despite a gloomy ups and downs scenario around the globe, especially with the European Union reporting unrest over strong measures to contain debt burden, here is a good news from the microfinance sector.  The human capital-intensive microfinance industry has shown itself to be resilient as measured by trends in employee compensation practices according to the Unitus-Hewitt Compensation & Benefits Survey.

However, while microfinance institutions (MFI) revenues have grown, the survey also shows management forgoing salaries nearly three times larger in other sectors in exchange for an opportunity to make a genuine impact in the lives of India’s working poor.

“Compensation and benefits practices provide a unique lens through which we can assess the health of the microfinance industry and the motivations of its leadership,” said Sandeep Chaudhary, Hewitt Associates’ Rewards Consulting Leader for South & West Asia. “Today and in times to come, we believe the insights offered in this report will influence HR strategy, organisational structures, and compensation and benefit design throughout a sector in constant pursuit of a balance between financial stability and social impact,” Chaudhary said.

Designed as a platform for MFIs in India to learn, share and network on human capital issues, the Survey is an aggregation of data collected through individual evaluations that, when compiled, provides valuable insight into key trends and comparisons across the sector.

The study examined three key areas from which larger conclusions about the state of the sector can be drawn, specifically:

- How Microfinance Compares With the Broader Financial Sector,
contextualizing the now INR12,000 crore microfinance sector against the
backdrop of comparable industries across India.
- Compensation Costs, examining the costs associated with such
a human resource-intensive industry with a need to maintain a balance
between social mission and financial viability.
- Incentive Design, a look at the structures and how individual
motivations can influence an organisation’s ability to reach unserved
populations.

“In looking at the aggregated information and data, we can now confidently say that the industry has taken positive initial steps in professionalizing the management of human capital,” said Ganesh Rengaswamy, India & South East Asia Country Director for Unitus. “However, all players in the sector need to build upon that foundation to codify effective HR practices for sustainable success in serving India’s working poor,” he said.

Among the findings, the Survey reveals interesting–and sometimes surprising–conclusions about the sector, including:

- Despite the economic slowdown globally, the sector continued to realize
steady growth and, as such, there was no urgency for drastic measures
to be taken in 2009 to control salary costs.

- While the rate of salary increase becomes steeper while moving up the
MFI management scale, Senior Management salaries are between one-half
and one-third of comparable positions in the larger finance sector.
Furthermore, employee stock options are found in one out of three MFIs.

- Most MFIs have structured incentive programs that are working well from
an MFI operations perspective, however some MFIs are experimenting with
the idea of no incentives for field staff as a means of affecting
measurable performance on social objectives.

The study comes at a critical time for the sector as a decade of explosive growth has brought increased attention to the impact of microfinance on the lives of borrowers and the manner in which MFIs compensate staff.

“We hope that the findings will allow for a more equitable and honest public discussion of key issues in the development of the microfinance sector,” Rengaswamy continued, “given the industry’s potential to offer opportunity to those who might otherwise not have access, it is too important an issue to not be addressed effectively.”

The survey provides a snapshot of the sector through study of 15 participating MFIs representing over 10 million clients across India. It examines compensation and cash benefits for 25 critical positions at eight organisational levels, as well as looking at 10 popular non-cash benefits. Following the survey, participants received detailed customized reports and participated in an implementation workshop discussing results and recommendations.