BUILDING HUMAN CAPITAL FOR THE SUSTAINABILITY OF MICROFINANCE BANKS IN NIGERIA

ABSTRACT

The study is on Building Human Capital for the sustainability of microfinance banks. The objectives of the study are to: find out if staff of microfinance banks have cognate experience, academic and relevant professional qualification and the extent they affect performance; examine whether their recruitment and selection procedure is competitive enough to attract qualified applicants; examine the quality of their training and development programmes and its effect on employee performance; critically investigate their working environments as it affects human capital development determine the extent to which performance appraisal can lead to effective human capital development. Data for this research were obtained from both primary and secondary sources. The study had a population size of 1326, out of which a sample size of 300 was determined using Taro Yamane’s statistical formular. Survey research design was adopted. Analysis of variance and t-test at 5% level of significance were used to test the hypotheses. To ensure research instruments are valid, a conduct of a pre-test of every question in the questionnaire was carried out. For reliability of the research instruments, a test re-test method was adopted. Findings indicate that; inadequate cognate experience, academic and professional qualification have negative impact on the performance of microfinance banks staff; recruitment and selection procedures are not competitive enough to attract qualified applicants; training and development programmes are inadequate; the working environment has negative impact on the quality of human capital in microfinance banks; performance appraisal tends to support human capital development in microfinance banks. The study concludes that there is a need for a sound human resources policy frame work that will accord priority to formidable and vibrant work force in microfinance banks for its sustainability. Based on the findings, the study recommends that regular training and development programmes both local and overseas should be organized for all categories of staff. Recruitment and selection procedures should be capability-based and go beyond catchments areas to make it more competitive. Management should create a good working environment that can motivate employees to be committed to their organization.

CHAPTER ONE INTRODUCTION

1.1      BACKGROUND OF THE STUDY

The ability of any organization to execute its strategy and achieve its goals depends on how it can attract, organize, develop and manage its human resources effectively. Any organization that aspires to a positive change or improved quality service delivery would as a matter of necessity strive to engage quality human resources. Under a competitive environment, the ability of a firm to generate sufficient profit and the competence in planning hinge very much on the worth of human resources particularly when adequate resources are present to satisfy the requirement of demand forecast. This might have been the major reason why Giwa (1990:32) asserts that of all the resources an organization or nation requires, human resources is the most important.

The role of quality human resources in achieving organizational goals and objectives cannot be over-emphasized. It is the human capital that dictates the quality of service and the overall performance of such organization. It  is  the  human resources (capital)  that  organizes and manages all other resources of the organization. It determines the appropriate quantity, quality and mix of other resources. Hence, any organization that fails to give the require attention to its human capital is doomed to fail. In order words, the ability of any organization to face the challenges of the current global competition and technological changes calls for resourceful human capital.

The micro-finance firms like any other sector have their goals and objectives to pursue. They equally have their strategies to execute in order to achieve these goals. However, like other organizations, this task cannot be carried out effectively in the absence of a virile, formidable and  quality human capital.  Microfinance banks  like  any other  organization face  daunting challenges in the market place. Of particular reference is the stiff competition, which they have to contend with especially among the more established and experienced commercial banks. They need not only quality human capital; the manpower must be in the right mix and quantity to complete favourably in the business environment.

The practice of micro finance in Nigeria is culturally rooted and dates back to several centuries. The traditional microfinance institutions provide access to credit for the rural and urban low

income earners. They are mainly the informal Self Help Groups (SHGs) or Rotating Saving and Credit Association (ROSCA) types. Other providers of microfinance services include saving collectors  and  co-operative  societies.  These  informal  financial  institutions  generally  have limited outreach due primarily to paucity of loanable funds.

In order to enhance the flow of financial services to Nigeria’s rural areas, government has in the past initiated a series of publicly – financed micro/rural credit programmes and polices targeted at the poor. Notable among such programmes were the Rural Banking Programmes, sectorial allocation of credit concessionary interest rate and the Agricultural Credit Guarantee Scheme (ACGS).

Other  institutional arrangements were  the  establishment  of Nigerian Agricultural and  Co- operative Bank (NACB), the National Directorate of Employment (NDE), the Peoples Bank of Nigeria (PBN), the Community Banks (CB) now Microfinance Bank, and the Family Advancement Programme (FEAP). It also created the National Poverty Eradication Programme (NAPEP) with the mandate of providing financial services to alleviate poverty.

The National Association of Microfinance Banks NAMFB, (2006) defines microfinance Banks as  a  “self-sustaining  financial  institution owned  and  manage  by  community or  group of communities, individual or group of individual, community development association, private or corporate entities and foreign investors for the purpose of providing credit, deposit, banking and other financial services to its members largely on the basis of their self recognition and credit worthiness”.

The microfinance policy launched on 15th  December, 2005 due to the prolonged sub-optimal performance  of  many  existing  community  banks  has  the  following  goals  and  objectives; Provide diversified, affordable and dependable financial services to the active poor in a timely and  competitive  manner  that  would  enable  them  to  undertake  and  develop  long  term sustainable entrepreneurial activities; Mobilize saving for intermediation; Create employment opportunities and increase the productivity of the active poor in the country thereby increasing their individual household income and uplifting their standard of living; Enhance organized, systematic  and  focused participation of the  poor  in the  socio-economic development  and resources allocation process; Provide veritable avenues for the administration of the micro credit programmes of government and high net worth individuals on a non-recourse case basis

and  Render payment services such as  salaries,  gratuities and  pension for  various tiers of governments. (CBN 2005:12).

Economic growth and development cannot be achieved without putting  in place carefully crafted policies to reduce poverty through empowering the people by increasing their access to factors  of  production.  The  latent  capacity  of  the  poor  for  entrepreneurship  would  be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income and created wealth. Microfinance is about providing financial services to the poor who are not traditionally served by the conventional institutions. The formal financial system provides services to only about 35% of the economically active population while the remaining 65% are excluded from access to financial services (CBN, 2005:6). Microfinance policy objectives are geared towards creating microfinance banks that are financially reliable, self-sustaining and integral to the communities in which they operate with the potentials to attract more resources and expand quality services to their customers (Lemo, 2007:3).

The   nations’   emerging   economy,   therefore,   requires   the   active   participation   of   the economically active population who are poor. This can be achieved by having a vibrant and robust microfinance sub-sector that will be adequately integrated into the main stream of the national financial system and provides the stimulus for growth and development. Microfinance is  about  providing financial services to the poor who  are traditionally not  served by the conventional  financial  institutions.  This  shift  in  emphasis  to  grass  root  development  has become a matter of necessity and in effect it has become imperative for government to lift-up the  rural  low-income segment  of the  Nigerian  society  if  it  is  to  undergo  true  economic transformation. Therefore to achieve these fundamental objectives and goals of microfinance policy optimally, a formidable and virile workforce, quality manpower is needed for economic transformation and stability.

1.2      STATEMENT OF THE PROBLEM

Robust economic growth cannot be achieved without putting in place well focused programme to reduce poverty by increasing their access to factor of production especially credits. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance house hold income and create wealth.

So, going by the relevance of microfinance services, the federal government of Nigeria could be said to have very good intention. Also the rate at which microfinance policy is embraced shows the faith the various microfinance operators and government NGO’s have in the policy. In Kogi State for instance, virtually all the Community Banks embraced the policy to obtain the license to transform into microfinance banks and granted approval after meeting the policy requirements.

It is disturbing however, that a sizeable number of these microfinance banks are failing to live up to expectation as some of them are still operating in the conventional manner which could not sustain the nation’s emerging economy. Some of these banks are running skeletal services. Lack of adequate skill to deliver services effectively, unwillingness of conventional banks to support microfinance, paucity of loan-able funds, absence of support institutions, incompetent management, poor corporate governance, insider abuse, weak internal control, poor credit administration and low management capacity of clients are some of the factors responsible for the sub-optimal performances of the microfinance institutions which make them to perform below expectation.

Of significance among the causes of this inefficiency is poor quality of human capital. Most microfinance banks do not have the required competent hands as most of the staff do not possess the required cognate working experience or relevant academic/professional qualification. Taking employment in microfinance banks have become a stepping – stone for the unemployed and fall back to retrenched workers and the retirees of various professions. Such is the horrible state of human resources in the microfinance sector. However, no adequate explanation or reasons have been adduced for this state of affair. This study is therefore aimed at building human capital for the sustainability of microfinance banks in Nigeria.

1.3      OBJECTIVES OF THE STUDY

The set objectives of the study are the following:

1.         To find out if staff of microfinance banks have cognate experience, academic and relevant professional qualification and the extent they affect performance;

2.         To examine whether their recruitment and selection procedure is competitive enough to attract qualified applicants;

3.         To examine the quality of their training and development programmes and its effect on employee performance;

4.          To  critically  investigate  their  working  environments  as  it  affects  human  capital development;

5.         To examine the relationship between the quality of their human capital and operational performance;

6.         To determine the extent to which performance appraisal can lead to effective human capital development.

1.4      RESEARCH QUESTIONS

Considering the problem at hand the following questions for which answers are expected to be provided at the end of the study were asked.

1.         Do the staff of microfinance banks have the cognate experience, academic and relevant professional qualification and how do these affect performance?

2.         Are the recruitment and selection procedures competitive enough to locate and attract qualified applicants?

3.         What is the assessment of the quality of training and development programme and its effect on employee performance?

4.         What impact do the working environments have on human capital development and performance?

5.        What is the relationship between human capital development and performance?

6.        Do performance appraisals support human capital development?

1.5      RESEARCH HYPOTHESES

The following hypotheses were formulated for the study.

1.  Inadequate  cognate  experiences,  academic  and  professional  qualification  by  staff  of microfinance banks tend to have negative impact on their performance.

2.  Recruitment  and  selection  procedures  are  not  competitive  enough  to  attract  qualified applicants.

3.  Inadequate training and development programme for microfinance staff significantly affect their performance.

4.  The  working  environment  has  negative  impact  on  the  quality  of  human  capital  in microfinance banks.

5.  There is positive relationship between human capital development and performance of staff in microfinance banks.

6.  Performance appraisal tends to support human capital development in microfinance banks.

1.6      SIGNIFICANCE OF THE STUDY

The significance of the study cannot be over-emphasized and can be viewed from the following perspectives.

      The result of this study will assist management of microfinance banks in formulating effective human resources management strategies or policies toward achieving their goals.

      The stakeholders (or owners) of microfinance banks as well as depositors will find this study useful as it sought to offer suggestions as to how competent hands can be secured to handle their hard-earned investments and deposits respectively.

      Result of the study could also be useful to Central Bank of Nigeria (CBN) who now oversees the operation of microfinance banks in formulating appropriate regulatory policies for the bank.

      The study will be relevant to future researchers as it will serve as a guide for further studies.

1.7      SCOPE OF THE STUDY

The study focuses on building human capital for the sustainability of microfinance banks in Nigeria. The study focused on six human resource variables out of many identified by the world  bank  study  of  banking  institution  in  developing  countries  (Diana  Mc  Naughton,

1995.72). These variables are: training and development, recruitment and selection procedure, working environment, leadership development  and  performance appraisal.  Twenty microfinance banks were randomly selected from Kogi and Kwara States for the study.

1.8      LIMITATIONS OF THE STUDY

This study was limited by the following factors:

Time Constraint:

Due to the limited time frame for this study the researcher was not able to get all the required information needed for the study.

Attitude of respondents:

The attitude of the respondents has impact on the study. Some copies of the questionnaire were badly completed which the researcher had to reject. Not all respondents were willing to give audience or attention to the researcher.

Finance:

To give a study of this nature a scholarly attention, it requires sufficient fund. Due to financial constraints, the researcher could not visit some places where relevant information could be obtained.

1.9      DEFINITION OF TERMS

Training – This is the acquisition of knowledge and skill to enhance the competence and hence the performance of an employee for the purpose of improving on her current and future jobs (Flipoo, 2001:36)

Recruitment – This refers to the process of finding applicants whose skills, abilities and characteristic are best suited to an organization (Gold and Bratton,  2002:20). Remuneration/Reward – In this work, the two terms refer to all forms of financial returns and benefits employees receive as part of employment relationship.

Human Capital – This refers to the totality of energies, skills and knowledge available in an organization. It refers not merely to the numerical strength but more of the educational and skill content of the workforce. (Woodruff, 1998:63).

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