Employee turnover and the depth of outreach of microfinance institutions: a non-linear approach

ABSTRACT

By utilizing data of 1,336 Microfinance Institutions (MFIs) from 91 emerging and developing countries for the period 2010–2018, this study investigates the non-linear/quadratic relationship between employee turnover and the depth of outreach of MFIs. The data were analysed using conventional panel data econometric tools and techniques. In general, the findings revealed that employee turnover has an inverted U-shaped relationship with the depth of outreach of MFIs when proxied by the proportion of female borrowers. The study outcomes imply that a low to moderate level of employee turnover is good for MFIs, as it may overcome organizational blindness and groupthink, and favours the replacement of unproductive and inefficient employees that lack social or human capital related to their job. However, after a certain threshold, employee turnover was observed to generate an adverse impact on the depth of outreach of MFIs. Therefore, the management of MFIs should give due consideration to ensuring an optimal level of employee turnover that is beneficial for the intended organizational goals.

KEYWORDS:

• Employee turnover
• depth of outreach
• performance
• microfinance institutions
• staff turnover

JEL CLASSIFICATION:

• G21
• J63
• L25

Acknowledgements

The author is very much grateful to the Editor (Professor Mark Taylor) and two anonymous reviewers for their very insightful comments and suggestions on the earlier version of the draft. The author believes that the quality of the article has substantially enhanced after addressing their recommended revisions.

Disclosure statement

No potential conflict of interest was reported by the author.

Data availability statement

All the data used in this study are freely available from; https://databank.worldbank.org/source/mix-market

Notes

¹ Employee and staff are interchangeably used in this study.

² Breadth and depth of outreach are also known as quantity and quality of outreach/social outreach of MFIs, respectively.

³ For further detail on why the inverse of average loan balance over GNI per capita is better, please read the article written by Widiarto and Emrouznejad (2015).

⁴ There are several ways to take care of the endogeneity issues in microfinance research, and details on how Hausman-Taylor model addresses it can be found in the study of Meyer (2019).