Back in autumn, we published three pieces in a series entitled the Summer of Flux, which among other things explored the acts and omissions throughout the pandemic that distinguished the Sentinels’ varied responses. It looked at the role of those most curious and nebulous factors - ‘luck’ and ‘courage’ - in how they’re getting on. Since then, the situations the Sentinels find themselves in are as varied as ever. Some feel increasingly positive; clear about the path ahead. Others are still beset by uncertainty - and stress. And the arrival of Omicron in each country has created further variability in context and outlook.
In part because of this variability, our next round of posts will be organized more thematically, while also trying to take stock of two years of the pandemic. We’ll discuss digitalization - the race towards which seems ever-urgent, with Sentinels for the most part still seeing it as a lifeline out of crisis. But contradictory research continues to emerge on this, and we’ll dig a bit deeper into that. There will be a case study on how MFIs in high-income countries are coping and responding - relying on our newest Sentinel that joined the project in November 2021 - as well as other inputs from MFIs in high-income markets.
We’ll also be taking stock of the financial situation of MFIs, specifically examining equity positions and a possible framework to guide recapitalization, and finally, as we approach two years since the start of the pandemic, a retrospective on what this period has meant for these MFIs and their leaders. What are some of the big lessons and insights? What are some successes and failures that our Sentinels have experienced? What decisions have been hard, and what mistakes, with hindsight, were made?
First up though is a look at the pandemic through the lens of Human Resources - the experience, motivation, and morale of staff, as well as the leadership and decision-making needed to guide it. What have been the implications of changed working conditions, reduced job security and changes in compensation and incentives, the effects of these on staff morale, and challenges relating to retention and recruitment?
Working conditions
Since the start of the pandemic, few changes have been as defining as the nature of work itself. Like all organizations, MFIs have had to shift to some level of working from home, dealing with the many challenges and also opportunities that come with it. For one Latin American Sentinel, working from home has been profoundly double-edged:
“Traditionally in our culture, your office is your home. Some people need a lot of direction. When they work from home, they don’t work as hard and lose productivity, especially men. Women work hard, it's rare to have problems with women. If you are having problems with women, it’s because they have a second job. But that brings a different problem. We are asking ourselves, did we overwork people? People probably worked more hours from home, for fear of losing their job. We have to measure this. [We don’t] want to burn people out. We have stopped sending emails on Sundays, stopped evening meetings and calls.”
Working from home is not the only source of burnout. For a Sentinel in Southeast Asia, the pandemic has brought with it other sources of stress. “Being a loan officer right now is a terrible job. You’re a frontline worker, face-to-face with clients all day. Workload is up, [there is] more delinquency, we have 250 to 450 clients [per loan officer]. Adding to that we are in a core banking system transition, and in some areas they have double work to do. And it’s a risky job to do. Staff is burning out.”
Another MFI in a high income country – a new addition to the Sentinel Project – has gone through similar challenges. With the most recent set of restrictions that went into effect in Nov 2021, staff are allowed only one day per week in the office. The cumulative effect has been difficult: “For the MFI field staff it has been difficult to fully embrace and experience the organizational values during the pandemic. This is particularly relevant for those that were hired during the pandemic who never experienced “normal” working relationships with their colleagues.”
Job security, compensation & incentives
A period of crisis inevitably creates (legitimate) concerns about job security among staff. One Sentinel in Latin America mentioned laying off staff outright in response to the pandemic. “We had to fire most of our salesforce – promoters – and kept loan officers because they were union employees. We had serious concerns about our ability to change their mindsets and roles, but the loan officers are now promoters… [while also having to] approve loans.”
Another Sentinel in East Africa let go of all temporary staff and brought its internship program – an important part of its field operation – to a halt. “Some contracts that were coming to an end, mainly for branch support staff, were not renewed.” The restructuring back in 2020 at this MFI was significant, down from almost 400 to 250 staff - and has been flat ever since.
However, most Sentinels sought to cut costs without letting go of staff. One go-to option is to rationalize costs by leveraging the existing compensation structure. One Latin American Sentinel sought to limit “non-mandatory benefit packages and also froze salaries for 2021.”
A more severe step is an outright salary cut, even if temporary. The same East African Sentinel made “an average 25% salary cut to all remaining staff (management took up to 30%). These salary cuts lasted 8 months from May to December 2020. In January of 2021 they were back to pre-Covid levels.”
A similar approach was applied by a Sentinel in South Asia, where wage cuts did not apply to everyone, but were progressive - only applying to those above a certain income threshold. “[Higher-level staff] were earning sufficient income for sustenance. In both the 2020 and 2021 waves [of the virus] wage cuts were in place for this segment of employees, as things were uncertain and managing the finances of the company was a challenge. But once things came back to normal, wages were restored.”
In light of these changes to compensation and job security, the impact on morale was substantial. Several Sentinels have sought to tackle these concerns directly by adapting their incentive structure to the new environment.
“How can we increase the net take home pay of our people?” asks a Southeast Asian Sentinel. “This is the biggest challenge here… we are a culture of extended families with high dependency on income earners,” he says, but adds that simply increasing salaries is not feasible in this environment. Indeed, the mid-year bonus has been stopped as part of a number of cost-cutting measures, and instead the focus, for this organization, is increasing allowances and commission-based income: “maximizing the workload” of employees to give them the opportunity and incentive to earn more. For this MFI, the focus has been on transitioning to a business model that emphasizes cross-selling and promotion of an expanded array of products and partnerships, under which loan officers are very strongly encouraged to use social media. One example is promoting insurance products that, despite not being loan officers’ core remit, yield a referral commission for every new client. These loan officers, mostly working from home, are encouraged to use appraisal calls with prospective loan clients to introduce other products as well.
A different Southeast Asian Sentinel discusses how hard it is to manage the incentive eligibility of loan officers. This is a “finicky” process, and “very hard to get right, to work out [the incentives], how will they translate into behavior?” For this Sentinel’s organization, incentives are tied to portfolio at risk (PAR), a figure which has increased for virtually all MFIs during the pandemic. Their solution has been to increase the PAR threshold under which loan officers can still be eligible for incentives, but balancing this by reducing the amount of the incentives themselves. The result was to distribute the available incentives more broadly: the best loan officers get relatively less, and the poorer performing ones get relatively more, a redistributive change that the Sentinel describes as his “trickiest decision… luckily I have a magician for a COO.”
By contrast, a South Asian Sentinel introduced a performance “award” in mid-2020. “If collectively the institution reaches a 93.5% repayment target, we would provide everyone in the field staff (loan officers, area and branch managers) with a bonus. They didn’t expect this, and it led to a boost in morale. This performance-linked bonus became a fixture - provided for every month when the target was reached.”
Increasing staff morale can be done in ways beyond financial incentives, too. A South Asian Sentinel describes the importance of understanding the emotional, compassionate role that loan officers must play, and the stress-related toll that can take when dealing with clients in repayment distress. In such cases, a mechanism for loan officers to seek discretion and flexibility to give those clients relief is part of letting loan officers feel like they are helping (or at least, not hurting) those they’re serving. “We make clear that the loan officers can bring it to the notice of senior management and make a case for the customer to be treated as an exception and given some relief.”
The morale dilemma
The combined effect of increased stress from work conditions, anxiety about job security and lower compensation – and of course the emotional toll from the pandemic itself – has had a significant impact on morale, despite efforts to mitigate it.
Reflecting on the challenge, one Sentinel in Southeast Asia recognizes the difficulty of finding the right balance, acknowledging that some of the impact simply cannot be mitigated.
“The loan officer job has been really hard, there's a lot of dealing with borrowers who are in extreme circumstances. Maybe demands from branch managers were unreasonable, but we did put a lot of safeguards in place, for instance by over-recruiting to be sure there is enough staff, and raising eligibility for incentives. But the job is hard, and it is expected that branch managers apply its requirements with rigor.”
Multiple Sentinels have also had staff members who passed away from Covid. This certainly weighs on morale. A South Asian Sentinel tells of the three employees who died during the second wave of the pandemic in that country. “One challenge was to manage the employee sentiment, because such tragedies demoralize them… the families of the deceased employees were assisted, and attempts were made to employ someone else from the families. But nothing can replace the people who died.”
The two-year trendline has certainly been negative for the new high-income country Sentinel, which conducted an internal staff survey in October 2021 (a trough between two Covid waves) and found that “staff morale is lower for all indicators compared to 2020.” To try to address this, the MFI has recently created a working group of both staff and board members to improve staff morale. Its work is conducted at two levels: 1) work/life balance and proportionate incentives; and 2) addressing commitment/motivation. Perhaps this is part of the “post-Covid” adaptation - realizing that the world is changed, and organizations have to change too.
A different experience can be seen in at least four Sentinels (in South and Central Asia, and in Latin America), where the overall mood of the staff has been positive. At least part of it is a result of changed expectations. As one South Asian Sentinel puts it, “employees understand the constraints under which the management had to take such decisions.” So a big part of tackling morale-related challenges is ensuring staff see the bigger picture. As one market observer in South Asia points out, “the most successful MFIs were the ones that clearly communicated the uncertainty [stemming from the pandemic] to their staff.”
Retention & recruitment
Ultimately, the impact of morale shows up not just in the productivity or well-being of staff, but also in their decision to stay or go. Throughout much of the pandemic, one Southeast Asian Sentinel has struggled with high loan officer turnover, but there are finally signs of light: the turnover rate appears to have peaked and is now declining. Some of the turnover was from “people taking new jobs, moving, starting their own businesses from home”. But research to understand what was going on also revealed a number of incoming staff unhappy with the environment and the limitations that the pandemic was placing upon the role.
“It is a stressful sector right now, and many people don’t know what they are getting themselves into, a problem compounded by branch managers not allowing some of these new hires to pass their probationary period. Is this because managers have too high expectations? Or people taking any job they could get? They probably made errors on the recruitment side and it’s a dynamic sector, with lots of poaching, meaning that you relax your entry-level criteria.”
This problem of termination during probation has now been brought to this Sentinel’s attention and is looking better now. “Kudos to the HR team who stuck it through, and regularly managed to ‘replenish the stock’”.
The challenges of high turnover don’t just apply to loan officer level staff, either. A new Sentinel from a high-income country says the current high turnover was worsened by the pandemic, and stretches even up to senior management. The COO role for that organization, notorious for its high turnover, has now been split into two positions just to ensure some more stability.
So some challenges come from not just losing staff, but from choosing them. One Sentinel describes his biggest mistake of the pandemic as the recruitment of an HR manager that took place in 2021. The person selected had a lot of for-profit experience that was a poor fit for the organizational culture of a socially-focused MFI. The consequences of this decision, he says, were “significant”, particularly for staff and volunteers (the coordination of which was the role of this HR manager) and the “demotivation, conflicts and adverse morale - already low due to the pandemic - created distance and communications challenges for the staff.”
Finally, another Sentinel - this time from Southeast Asia - also opens up about the consequences of choosing the wrong people for a role. In this case they were not external hires but promoted from within. “I had high expectations”, he says. “I knew them, they made a lot of promises… but ultimately I failed to put the right people in the right place.” There were five people promoted in this case - from loan officers to supervisors and area managers. The usual process in place for such promotions, via the HR Committee, was expedited or even bypassed because of the critical needs during the pandemic. “You have to show your leadership by moving fast, recovery requires immediate action.” But the impact of the choices made was serious: two departments were closed because the wrong people were in place. “They were highly empowered to do their jobs, trained and had signed documents on compliance and their new job descriptions… I don’t know if my expectations were too unreasonable, but I needed them to be autonomous. They shouldn’t need to be told what to do. In a crisis, leaders need to act fast. I told them to pay attention to what's happening around the world… but they weren’t interested. Failing to recognise that they were not suited was a big mistake on my part.”
Insofar as staff changes can be regarded as the proverbial “canary in the coal mine”, there are some tentative signs of recovery. A Latin American Sentinel that had previously let go of 1,500 staff during the darkest of days of the pandemic, is rebuilding. “We rehired loan officers from before that we had to fire because of the pandemic. Now we can bring them back. And they came back! I hired 180 people in loan officer roles.”
The role of staff, and the impact of the jobs created by microfinance institutions directly, hasn’t been a big part of the long discussions about the impact of microfinance. To be fair, it was never one of the central claims or hopes of the movement. But there’s no question that MFIs, through their staff, past and present, play important roles in local, regional and even national economies. They are certainly a key part of the equation of MFI success and impact. The effect of human resource challenges within MFIs will likely be a big part of the future story of the resiliency, or lack thereof, of the sector.
In the next piece in this series, we’ll explore the impact of the pandemic on digitalization among the Sentinels.
