Effects of Employee Engagement on Employee Retention in Micro-Finance Institutions

Abstract

The growth of micro financial institutions (MFIs) has always played a fundamental role in any developing economies. Their ability to provide credit facilities to low income earners who lack the desired securities and collaterals demanded by the well established financing institutions makes vulnerable and exposed to higher risk. However, the growing interest to tap on the wider base of these low earners has made the existing financial institutions encroach into the MFIs customer base. Unfortunately, the institutions are not only targeting the customers but also the employees who are well versed with the rough terrain of micro financing. This has even exposed the MFIs further as they are faced with an increasing staff turnover rates. Competition always presents a good business environment and improved service delivery o both the customers as well the employees. Therefore, to avoid the vicious cycle of hiring, training and loosing, MFIs must wake up to the call and tame the increasing movement of their best employees. This can be achieved through improved employee engagement strategies which research has showed as a potential magnet if well researched and addressed. The researchers motivation to pursue this study is twofold; 1) the fact that reducing employee turnover is a strategic and critical issue that forms the bottom line of any organization and 2) being well aware that MFIs are playing are critical financial role in breaching the economic gap between the citizens of developing countries like Kenya where this study was conducted from. The results indicate a declining trend of employee engagement which perhaps explains the current increasing rates of staff turnover. Using identified indicators of engagement such as friend recommendations, contentment with the organization and age of workers; it is observed that the organization is having a large pool of newly employed workers who almost 40% may not recommend the friends for employment. This is an indicator of poor working environment or simply lack of enforcement of engagement strategies. Further, the performance indicators used by MFIs should be perceived as punitive rather as tools of quality measurement. While they can measure quality, they too need to be inclusive and humane in nature as different working environments present unique challenges. This study recommends inclusion of such simple approaches like recognition, transfers, involvement in decision making and ensuring a clear, transparent and equal opportunity of growth without favorism and corruption. It further recommends a detailed study of the engagement drivers that are suitable for MFIs across various regions in the world where such businesses exist.