Memoire Online - Human capital management in rwanda: challenges and prospects for microfinance institutions

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All rights reserved. No part of this thesis may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission in writing of Maastricht School of Management and / or the School of Finance and Banking, Kigali, Rwanda.

All pieces of research are a result of interwoven efforts from various stakeholders. This piece of research would not have been a reality without the support from the following:

My Pastor Dieudonné VUNINGOMA, for always challenging me to dream big; All professors involved in the SFB - MsM MBA outreach program;

My thanks go particularly to Dr MUSOBO C. Ibrahim for his wise guidance. He was more than a supervisor throughout my career;

The Management of DUTERIMBERE IMF SA, especially the Director of Finance and Administration, and her coworkers for their input in this research;

The Management of IMF UNGUKA SA, especially Justin KAGISHIRO, the Director of Operations and Banking Transactions, and her coworkers for taking time to assist me;

Colleagues in MBA Intake 4 especially MUYANGO, Francis, Elijah and Solange; Jean Pierre BYIRINGIRO for his insight into microfinance business;

My younger siblings for always asking me my next academic step to make; My coworkers for moral support;

I, SAFARI Jean Paul, hereby declare that this thesis is my original work and has never been submitted to any other University for the award of Masters in Business Administration (MBA) degree or any other degree.

ABSTRACT

This study was about challenges and prospects of Micro finance Institutions regarding Human Capital Management. It achieved 3 specific objectives including analysis of MFIs capacity to attract skilful employees, analysis of their capacity to retain skilful employees and analysis of the external factors influencing capacity to attract and capacity to retain.

It was conducted in 2 MFIs whose legal status is public liability companies (out of 96, there are only 11 public limited liability companies and 2 private limited liability companies), owing to insufficiency of resources at the researcher's disposal. In order to meet research objectives, primary and secondary data were collected by various means including literature review, focus group interview, the MFIs' management and employees.

At the end of the research, it was realized that some progress has been realized. However, due to lack of resource people and a weak financial base, MFIs target fresh graduates and senior six leavers. The way they manage training, performance appraisal, promotion, compensation, and career management, quality of supervision and involvement of employees in decision making is still needy. This results in high rates of turnover, both actual and potential. However, organizations which try to be transparent and give to employees opportunities of being shareholders make a difference in actual feeling of employees and the organizational goals.

Table 4.14: DUTERIMBERE IMF SA Employees perception of performance evaluation 59

Table 4.32: DUTERIMBERE IMF SA employees' perception of their salaries and benefits 62

Table 4.33: IMF UNGUKA SA employees' perception of their salaries and benefits 62

AMIR: Association of Micro finance Institutions in Rwanda ASBL: Association sans but Lucratif

CEDP: Competitiveness and Enterprise Development Project COOPEC: Coopérative d'Epargne et de Crédit

EDPRS: Economic Development and Poverty Reduction Strategy EVA: economic value added

GIRAFE: Governance, Information, Risk Management, Activities and Services, Financing and

PAMIGA: Participative Micro finance Group for Africa RAMA: La Rwandaise d'Assurance Maladie

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions ROIC: Return on Invested Capital

SACCO: Savings and Credit Cooperatives SARL: Société à responsabilité limité SME: Small and Medium Entreprises SFB: School of Finance and Banking

SPSS: Statistics Package for Social Sciences SHRM: Society for Human Resource Management

UNESCO: United Nations Educational, Scientific and Cultural Organization WACC: Weighted Average Cost of Capital

According to the Consultative Group to Assist the Poor (CGAP), microfinance is defined as «a facility that offers poor people access to basic financial services such as loans, savings, money transfer services and micro insurance» ( http://www.cgap.org/p/site/c/about/).

Indeed, microfinance serves the un - bankable, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without ( http://www.microfinanceinfo.com/the-definitionof-microfinance/).

It is indeed estimated that more than 16 million people are served by some 7000 microfinance institutions all over the world and that about 500 million families benefits from these small loans making new business possible. There is even the goal to reach more than 100 million of the world's poorest people by credits from the world leaders and major financial institutions ( http://www.microfinanceinfo.com/history-of-microfinance/).

The year 2005 was proclaimed as the International year of Microcredit by The Economic and Social Council of the United Nations in a call for the financial and building sector to «fuel» the strong entrepreneurial spirit of the poor people around the world ( http://www.microfinanceinfo.com/history-of-microfinance/).

In Rwanda, the microfinance sector is relatively young. Although small self-help peasant organizations have existed for some time, the sector formalization process started with the creation of the first Banque Populaire in 1975. The rate of bank utilization at the national level is still low, with only around 10% of the population owning an account with a formal financial institution in June 2006. On the other hand, MFIs including Banques Populaires, have created a large network. By June 2006, 93% of all branches opened by the credit institutions in the country were MFIs (rather than commercial banks) and these served more than one million customers. It

is clear, therefore, that MFIs have a very significant role to play in enabling the majority (The Republic of Rwanda, 2007).

Brigitte, (2007) maintains that MFIs served 88% of depositors and 90% of borrowers. This is really a good instrument to transform Rwanda from a low income country to a medium income one with a dynamic, diversified, integrated and competitive economy.

Despite this hope, however, the year 2006 saw closure of many MFIs. In Kagishiro (2007), he underlined lack of professionalism as one major cause of the 2006 Rwandan microfinance crisis. This led many people to questioning the sustainability of microfinance institutions (MFIs).

In the same footing, the Vision 2020 notes, that «the severe shortage of professional personnel constitutes an obstacle to the development of all sectors» (Republic of Rwanda, 2000). In the same footing, the National Skills Audit Report (2009) highlights deficits in various sectors of the country; with 97% in the finance sector and 57% in Capacity Building & Employment Promotion Sector is at 57%.

The most urgent question raised by the skills audit report (2009) is what the skills gaps (deficits) mean for the economy and especially on the performance of key sectors of the economy and the attainment of targets in the Economic Development and Poverty Reduction Strategy (EDPRS) and of the goals in vision 2020.

Rwanda being one of the developing countries, she has a lot to benefit from microfinance. According to MINECOFIN (2007), 60% of the population is below the poverty line, 87% are in rural areas and survive on traditional farming, 48% are illiterate, and life expectancy is 49 years. This justifies the need for microfinance to bridge the gap between the status quo and promises made by Vision 2020 and microfinance, a vision which views human resource development, knowledge based economy and private sector led economy as ones of its pillars.

Ten years down the load the Vision 2020 was conceived and started being implemented, four
years since Rwanda experienced erosion of microfinance confidence among clients, still the GoR
believes microfinance is a strategy that will bring about radical changes in the national economy.

Indeed, the National Bank of Rwanda claims to have microfinance under control to avoid the same mistake. Bearing in mind that human capital management makes a difference in whatever sort of trade, how far have MFIs gone in their human capital management to ensure clients deposits security and the sector's sustainability? This is what is at the heart of this research.

1.2. PROBLEM DEFINITION

Rwanda's vision 2020 is an ambitious document by which the government expresses its intention to be a middle income country by 2020. According to the vision, if family planning services improve, the population is still projected to reach 13 million by 2020, of which 7 million people will be earning a living on off-farm activities. Therefore, it will be necessary to create 1.4 million jobs outside agriculture. Given the trends of the Rwandan economy over the past decades, this is clearly a huge challenge, in which the private sector needs to play a pivotal role. This is a challenge in a country where only 200,000 jobs outside agriculture were created since 1960 (The Republic of Rwanda, 2000).

One of ways to achieve this is to support the development and sustainability of small and medium enterprises (SMEs). However, experience shows that these need not big loans, they rather need micro funds, which calls for the need of serious microfinance institutions. According to WOCCU's technical guide to rural finance, the latter have capacity to contribute to employment creation, economic growth and income generations. It has indeed been observed that SMEs all not equipped to satisfy the requirements of classic banking institutions when it comes to loans requirements, i.e, collateral, etc. (Janet , 2002).

In Rwanda, however, the microfinance movement was crowned with a bad reputation because clients' deposits proved to be insecure in the 2006 microfinance crisis. In an effort to enforce Rwanda's law regarding microfinance institutions, NBR closed down eight Micro-Finance Institutions (MFIs) over alleged gross mismanagement of funds and significant losses incurred due to poor credit management practices. Thousands of clients and several MFI partners were also affected by the closure ( www.un.org/esa/socdev/egms/docs/2009/.../Kantengwa.pdf ).

Just to name a few, consequences where employees had to be asked to go home, companies that had given services to them lost, investors' money was lost, the National Bank of Rwanda lost because it had to refund depositors, above all, the consumer confidence in microfinance eroded ( www.un.org/esa/socdev/egms/docs/2009/.../Kantengwa.pdf).

Research conducted attributed this crisis to, among other things, lack of appropriate technical and managerial skills. Human capital management was a core issue. (Justin, 2007; Angelique , 2009).

It is against this backdrop that the study on «Human Capital Management in Rwanda: Challenges and Prospects for Microfinance Institutions» was done in a bid to map progress made so far, challenges encountered and the envisaged future.

1.3. RESEARCH OBJECTIVES

Research objectives are classified into two: general objective and specific objectives. 1.3.1. General objective

This research aims at investigating the challenges and prospects of MFIs in light of Human Capital management.

1.4. RESEARCH QUESTIONS

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Major research question

What are the human capital management challenges and prospects in the Rwandan microfinance institutions?

Minor question 1: Can MFIs attract skillful employees? Minor question 2: Can MFIs retain skillful employees?

Minor question 3: Are there external factors that influence MFIs' capacity to attract and retain skillful employees?

There are many aspects that are interesting to research on. One could study their profitability, their sustainability, their impact in poverty reduction; their products etc. However, for this study, only challenges, and prospects of MFIs in line with Human Capital Management will be studied.

Besides, there are many MFIs in Rwanda; the ones licensed by the National Bank of Rwanda are 96. The microfinance policy recognizes three types, that is, credit and savings cooperatives (SACCO / COOPEC), the public liability limited companies (Ltd / SA) and private limited liability company (SARL). Out of 96, there are only 11 public limited liability companies and 2 private limited liability companies in microfinance business. These ones were studied. Since resources were not enough to study all of them, only 2 of them were subject to this research. That is DUTERIMBERE IMF SA and IMF UNGUKA SA.

IMF UNGUKA S.A. was studied because it is 100% financed by individual shareholders. Indeed, it was recognized twice by different raters to be doing its best in professionalizing the microfinance business. As of DUTERIMBERE IMF S.A, it was begotten by a local non profit driven organization.

Besides, majority of its customers are women. It is interesting because it started with funds from donors. Both of them, however, were in existence by 2006 when Rwanda experienced the microfinance crisis.

Moreover, because of time and other resources constraints, research was conducted in Kigali, the capital city and Muhanga which is in 50 minutes drive from Kigali.

1.6. RESEARCH SIGNIFICANCE

This research is significant to the researcher, academics, clients and investors and to the Government of Rwanda as follows:

According to Lacy, Arnott and Lowitt (2009), human capital management can be seen from the point of view of employees knowledge, skills and attitudes since these impacts the organization change, leadership development, learning, performance management and employee engagement.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Table 1.1. Theoretical framework

	Organizational change	Leadership development	Learning	Performance management	Employee engagement
Knowledge	Involving	Align leadership	Informal	Give	Use
	employees in	with company	and	performance	employees as
Skills	employees in	with company	and	performance	employees as
Skills
	decision making	objectives	formal	related	agents of
Attitudes			learning	feedback	change
	Enhance talent management	Coordinate		Reward	Take care of internal publics for sustainability

1.8. RESEARCH DESIGN AND METHODOLOGY

Research methodology refers to techniques and tools used to gather present, process and analyze data gotten from the field. This research was qualitative. It looked into human capital management challenges and prospects in Rwandan MFIs.

1.8.1. Target population and sampling methods

There are in total 96 licensed MFIs as of September 15^th, 2009. However, for judgmental purposes, only two were subject to our study. IMF UNGUKA S.A. was studied because it is 100% financed by individual shareholders. As of DUTERIMBERE IMF S.A, it was started by a nonprofit driven organization serving women entrepreneurs, as of now, it is one of local MFIs

which is serving, mostly women. It is interesting because it started with funds from donors. The common denominator between them is that they were in existence by 2006 and survived the microfinance crisis.

1.8.2. Data collection instruments

First, the study used focus groups. One focus group, comprising 4 informants, 1 from the National Bank of Rwanda (NBR), 1 from NBR licensed auditors, 1 former MFI manager who is currently a consultant, and 1 from Association of Microfinance of Rwanda- an association whose mandate is to build capacity for MFIs.

This was used because time was not enough to cover many MFIs yet there was need to have a big picture of the sector. So, people with exposure who deal in many ways with MFIs were used for that purpose.

Secondly, semi structured interviews were used. These allowed the interviewees greater freedom in expressing the issues that they felt were most relevant from their own points of view, and to potentially highlight issues not envisaged at the interview design stage. Interviews with 2 key individuals; actually Human Resource Managers of the studied MFIs was conducted.

Thirdly, questionnaires were designed and distributed to 2 Managing Directors and employees in MFIs and people at non managerial levels. This was to a tune of 20 respondents per each microfinance institution sampled. The number of respondents and specific person to collect data from was decided on a judgmental basis.

Fourthly, literature review was used to gather secondary data. This relied on textbooks, articles, newspapers, policy papers, speeches and internet based sources.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 1.8.3. Data presentation and analysis tools

To ensure valid results, the data was converted and processed. A thorough examination of questionnaires and interview responses was done to ensure consistency, accuracy and completeness of the responses.

For a better analysis of the collected data, some techniques were used. These are editing, coding, tabulating and statistical analysis.

Editing: This is the first task in data processing. It is about examining errors and omissions in the collected data and making necessary corrections. After field work was finished, gaps, and errors in recording were corrected.

Coding: After the editing of the data, coding was done. This was meant to summarize by classifying the different respondents given into categories. Thorough check was done in order to detect any coding differences and eliminate ambiguous or irrelevant cases.

Data presentation: This used different tools to make sure that the corrected data can be presented in such a manner that it gives meaningful information. It will use the following tools:

Tabulating: After the previous steps, data was summarized; frequency distribution table of answers to each closed-ended question will be done. It used statistical tables with percentages.

Statistical Analysis: The calculation of percentages was done. This was as a number of the sample size then multiplied by a hundred divided by the frequency of the respondents. Statistical analysis was done almost for all tables. Summation was used as well so that conclusions can be done after relating these findings from the field and theoretical literature from various sources. Besides, SPSS was used to enter data, analyze frequencies and run correlations where such analyses were needed.

1.9. LIMITATIONS

First of all, human capital management is not a common practice among many companies and
organizations in developing countries. It was a little bit difficult to access some base line

information. Despite this fact, however, managers could not easily admit that they did not give enough value to human capital - at least they believe in this theoretically - as a consequence, their answers might not have been honest. However, their answers were checked by asking similar questions to the focus group and what employees said in their questionnaire.

Secondly, majority of respondents were French speaking yet the study language is English. Questionnaires had to be translated in French. Dissemination of the research might not help them as the final report is in English.

Lastly, research was conducted in SAs not in cooperatives (SACCOs / COOPECs). This research conclusions and recommendations may not be applicable to cooperative microfinance institutions.

Chapter one gives a general introduction to the study. The starting point is the study context. It highlights the importance of this study. In the same light, some detail is given to research problem, research questions, objectives and significance.

Chapter two covers the literature review. Major study concepts are discussed along side with their theories. These include microfinance and human capital management. At the end, the research gap is shown as a matter of justifying why this research is worthwhile.

Chapter three discusses research methodology. Then come chapter four and chapter five, which discuss present and discusses data collected; and summarize findings respectively.

This chapter is intended to reviewing literature on microfinance and human capital management. It discusses basic concepts and some theories thereabout. Effort is furnished to link human capital management and microfinance so as to study the related challenges and prospects. At the end of the chapter, gaps in literature review are established so as to justify why the current study is worth undertaking.

2.2. HUMAN CAPITAL 2.2.1. Definition

Human capital refers to the stock of productive skills and technical knowledge embodied in labor. Many early economic theories refer to it simply as labor, one of three factors of production, and consider it to be homogeneous and easily interchangeable resource. ( http://en.wikipedia.org/wiki/Human_capital).

According to the Human Development Report (2009), human capital refers to «knowledge, skills and abilities that make it possible for people to do their jobs and to be innovative and able to learn how to learn».

Human capital can also be defined as «people capacity to create added value for the company». ( www.zivkaprzulj.com/.../0/.../Challenging_Human_Capital_Measurement.doc). This is particularly associated with knowledge as a core resource in information era. As owners of knowledge and skills, people have unique capacity to influence all other resources. Recognition of this capacity is supported with a difference between companies' accounting and market value. At the same time, this could represent the formula for measuring human capital. This is inducing

According to (Becker, 1964; Schultz, 1971) human capital has been referred to as «an essential ingredient used in key element in improving an organization's assets and employees in order to increase productivity as well as sustain competitive advantage».

Once again, what is human capital? Let us look at the figure below: Figure 2.1. What is human capital?

Briefly put, human capital management is all about a combination of people, skills and roles they play in their organizations as illustrated above. They are just what football players are to their teams, what NBA players are to their team etc.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 2.2.2. Origin of concept

According to Wikipedia, Adam Smith defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters). The four types were useful machines, instruments of the trade, buildings as the means of procuring revenue, improvements of land and Human capital ( http://en.wikipedia.org/wiki/Human_capital).

It was observed that the acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, they benefit the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit ( http://www.economyprofessor.com/economictheories/human-capital-theory.php).

In short, Smith saw human capital as skills, dexterity (physical, intellectual, psychological, etc) and judgment. Life helps a lot. On a national level, a country's ability to learn from the leader is a function of its stock of "human capital". Furthermore, human capital can be acquired through formal schooling and on-the-job training ( http://en.wikipedia.org/wiki/Human_capital).

A.W. Lewis and Arthur Cecil Pigou are among authors who worked on human capital. But Pigou seems to be the one who gave it a positive meaning where he recommended that investment should be made in human beings ( http://en.wikipedia.org/wiki/Human_capital).

In neoclassical economic literature, Jacob recommended that investment in human capital (via education, training, medical treatment) are a priority if one wanted to maximize return on investments ( http://en.wikipedia.org/wiki/Human_capital).

Thus, human capital is a production means, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or fixed capital. ( http://en.wikipedia.org/wiki/Human_capital).

More importantly, Peter Lacy, James Arnott and Eric Lowitt, argue that in the face of an aging workforce and global competition for talent, organizations are finding it more and more difficult to attract and retain the most qualified employees. Innovating businesses must generate to remain competitive in a sustainability-oriented world ( http://openpdf.com/ebook/peter-lacy-pdf.html).

2.2.3. Human capital Management

Let us first look at the definition of human resources management. According to Wikipedia, human resource management is a strategic and coherent approach to the management of the most valuable resources of the organizations: people working there. Or, simply put, it means employing people, developing their capacities, utilizing, maintaining and compensating their services in tune with the job and organizational requirement ( http://en.wikipedia.org/wiki/Human_resources_management).

Human capital management is the term which is used to describe an organization's multi-disciplined approach to optimizing the capabilities and performance of its management and employees ( www.ishcm.com).

How do these two definitions connect? Adam Smith outlined different resources, human capital inclusive. It is against this backdrop that emphasis was to be put on human resources' attracting, developing, and retaining ( http://en.wikipedia.org/wiki/Human_capital).

More to that, the term human capital is recognition that people in organizations and businesses are important and essential assets who contribute to development and growth, in a similar way as physical assets such as machines and money. Organizations cannot perform without the right attitudes, skills and abilities of people. Any expenditure in training, development, health and

Drawing from discussions and the definition above, we can retain the fact that human capital has to do with knowledge, skills and abilities that make it possible for people to do their jobs. But let us look at the theories below.

2.2.3.1. Why Human capital management?

Businesses are separate legal entities. Despite this fact, however, there is another strong fact. Lack of right people means death of business. Competition cannot be dealt with without people; nothing else can be a long term source of competitive advantage without people. Leaders must recognize that people make a difference. Without them, companies cannot adapt to new changes in the business environment ( http://derekstockley.com.au/newsletters-05/018-humancapital.html).

Good human capital management practices should help organizations deal with human capital management challenges. Which challenges are these? Profiles International highlights major human capital management challenges in terms of massive employee turnover, having the wrong people in the wrong offices, high absenteeism, dishonesty among employees, inadequate team development, poor workforce development, substandard productivity, poor responses to stress and conflict, poor employee engagement, poor employee motivation, etc ( http://www.profilesinternational.com/syc_intro.aspx).

This is unfortunately a reality in almost all the organizations. Almost daily, business owners, executives, managers, and professionals are challenged by frustrating employee related challenges. Human resource management challenges cost company time, money, resources, lost opportunities, and reduced productivity, to name just a few ( http://www.profilesinternational.com/syc_intro.aspx).

So, there are many authorities whose contributions make good human resources management a winning case. Among others, Jim Collins (2001) came up with a rather challenging aspect about good -to - great companies. This was meant to see how proper human resources management practices guide companies in their traverse from good to great. It was found that celebrity leaders who ride in from outside are negatively correlated with taking companies from good to great. Ten of eleven good to great CEOs came from inside the company.

In the same light, according to Roos et al., 1997 (in Anastasios E. Politis, 2004), in modern societies, the hidden or unseen values of knowledge and competence are often given a priority. In this respect, persons, carriers of these «hidden» values, are becoming more and more important. It is, therefore, considered important to explore the way this happens today, by explaining individuals and their development.

Accountants do a good job. It is however some five decades down the road that they realized that accounting should focus its primary attention on supporting the decisions of managers and external stakeholders. They have been busy trying to serve as business stewards in terms of provision of mostly factual information, to those with a financial interest in a business, about its past transactions. Cost of labor was treated as expense and little attention was accorded to intangible assets like rent and human capital. The relatively new management accounting did not improve the situation ( http://www.ukessays.com/essays/accounting/accounting-humancapital.php ).

They have not yet done much, unfortunately. One of professional developments in corporate affairs is the three tier model of corporate transparency put in place by Price Waterhouse Coopers, 2003). It can be interpreted in a way that challenges an «incorporate picture of the company» as given by professional accountants. Following the Generally Accepted Accounting Principles (GAAP), they publish the health of the organization. This information may be lacking however because they speak a little on industry specific standards and company specific information as they do not include the value of the most valuable resources that run the organization, i.e, human resources. ( http://www.ukessays.com/essays/accounting/accountinghuman-capital.php).

In actual sense, however, once there is recognition that human capital represents an asset, it implies that necessary strategies will be put in place to milk the best out of it. Again, it is worth noting however that effort put in place to show link of human capital and business value has been challenged, the debate has not yet ended. The reality is however that «good» HRM practice will improve organizational performance, but this has been difficult to prove conclusively, given the many confounding variables. It is even possible to suspect a reverse causation - profitable companies can afford to treat their employees well ( http://www.ukessays.com/essays/accounting/accounting-human-capital.php).

a) High Performance Working System (HPWS) which is based on policies, processes and practices with high performance. This concerns selective employment, high salaries, benefit packages, shareholding, information exchange, development and training focus, participation and self-sufficiency, job protection, etc.

Cost benefit analysis has been so cherished in business decision making. Whether one wants to build a canteen, buy a machine, this should be thought of in terms of its ultimate impact on business. Money as a means for exchange, however, may not suffice, thus some difficulties in measurement. Apart, perhaps, from footballers, human beings are fortunately no longer (legally) bought and sold, and thus the last known exchange value cannot be used as an estimate of present value. ( http://www.ukessays.com/essays/accounting/accounting-human-capital.php).

Do employees belong to employers? This question of ownership is of great importance. For the accountants' definition of an asset assumes some sort of rights over it by the recipient of the future benefit. Employees will work for the employer but will ultimately leave. Human resources are by any standards, assets (loyalty, motivation, tacit and/or specialist knowledge, and the «added value»). It will thus be inevitable to see that any measurement model will inevitably be problematical and subjective. ( http://www.ukessays.com/essays/accounting/accounting-humancapital.php).

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 2.2.3.2. How to measure human capital?

Zivka et al., believe that that grading performances of individual employees represents the nucleus of human capital measurement. Strengths and weaknesses of human capital should be put at surface by such techniques. Looking at other HR practices like results, knowledge, behavior, relations, etc. is highly informative. Indeed, assessment of employee's performance is the key process for decision making in relation to employees development, training, awarding, firing, etc. and in this way establish criteria that are important for organizational success. There is no human capital mindset in an organization that does not measure employees' performance. They, indeed have difficulties in having a job done. ( www.zivkaprzulj.com/.../0/.../Challenging_Human_Capital_Measurement.doc).

Flamholz (1973) contribution was that three variables be analyzed. These are productivity, transferability, and promotability (these could perhaps be seen as surrogate ways of measuring skills and knowledge). His argument is that the value of an individual will be linked to the likelihood that that individual will stay with the organization (loyalty, perhaps measured by job satisfaction). Like any other, this is difficult to measure because of its qualitative measures. ( http://www.ukessays.com/essays/accounting/accounting-human-capital.php).

It may be tried to construct profiles of employees, assessed on key variables, such as loyalty, trust, motivation, effectiveness, experience, etc. Cataloguing these, individually, and in total, may give a useful insight into the development of the organization. It could be, for example, that a short-term increase in profit has been brought about only at the expense of an overall decline in motivation ( http://www.ukessays.com/essays/accounting/accounting-human-capital.php).

In the same regard, fortunately, Ross Blake suggests¹ a list of items to consider was suggested as exit costs, recruiting, interviewing, hiring, orientation, training, compensation & benefits while training, lost productivity, customer dissatisfaction, reduced or lost business, administrative costs, lost expertise and the cost of employing temporary workers. This list, certainly gives a case to what it means to loose a performing employee ( http://www.webpronews.com/expertarticles/2006/07/24/employee-retention-what-

Recognizing the difficulties of measurement through the behavioral variables proposed, Flamholz (1973) and a number of others have suggested approaching the measurement problem by applying existing techniques of economics and accounting. Accenture suggests that there be meaningful measures from an operational perspective and that measures need to be useful from an investment perspective. What an employee means to organizations should be seen in terms of their contribution to the overall company achievement ( http://www.infohrm.com/documents/articles/The_New_Frontier_of_Human_Capital_Measurem ent_(2007).pdf).

According to Mansor, Devadason and Said (2006), the importance of investing in human capital development can be justified as follows:

¹ Ross Blake of Retention Associates helps organizations improve employee retention and reduce turnover costs and problems

Peter Lacy, James Arnott, and Eric Lowitt, to supplement this, they argue that companies are finding it increasingly difficult to grow; investing in talent to meet the sustainability imperative may be the most potent way to achieve high performance.

Somboon Kulvisaechana, (2006) suggests that organizations' market values are depending more and more on intangibles, particularly human resources. However, little work has been done on what constitutes a framework of human capital development, particularly in view of investigating the gap between rhetoric (what is espoused) and reality (what is enacted).

Recent surveys reveal that although business executives firmly believe that people are the most important asset, most executives are at a loss to prove that investments in people lead to improved business results. Common metrics like economic value added (EVA^TM) and return on investment (ROI) shed little light on how an organization's human assets are performing. They say even less about whether an organization's people development processes are attuned to its business challenges. This tends to provoke thumbs up for those who do not value human capital. ( http://www.accenture.com/Global/Research_and_Insights/Institute_For_High_Performance_Bu siness/).

It is still difficult to link investment in human resources with the company outcome. We know, for example, that companies that invest in "strategic human resource (HR) management" seem to achieve better financial performance than those that use approaches that are more traditional. Unfortunately, correlation is not the same as causation. That is, it is still not clear whether strategic HR management drives superior financial performance or whether superior financial performance make it possible to take a more strategic approach to HR management The same drawback appears in studies of employee satisfaction. ( http://www.accenture.com/Global/Research_and_Insights/Institute_For_High_Performance_Bu siness/).

The challenge of effectively linking human capital development to financial performance is three-fold: (1) measures must capture direct and indirect effects; (2) the measurement process must be simple, repeatable and lead to actionable conclusions; and (3) results need to be compiled so that plans and forecasts can be built from them ( http://www.accenture.com/Global/Research_and_Insights/Institute_For_High_Performance_Bu siness/).

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Figure 2.3. Human Capital measurement

The Accenture Human Capital Development Framework (HCDF) uses four distinct measurement tiers in arriving at an assessment of an organization's human capital practices. These tiers reflect the key variables that influence the relationship between a company's human capital assets and its financial performance http://www.infohrm.com/documents/articles/The_New_Frontier_of_Human_Capital_Measurem ent_(2007).pdf.

The first tier depicts business results like traditional financial analyses featuring EVA^TM, revenue growth, market share and stock performance), the second one visits the key performance drivers like productivity, quality, innovation and customer satisfaction, the third one deals with human capital capabilities, their most immediate and visible people-related qualities (including employee attitudes and abilities) critical for business success, and last human capital processes which include the core HR processes (e.g., competency management and performance appraisal) and broader human capital processes such as learning and knowledge management.

Another somehow more systematic framework has been developed by Susan Cantrell. Both of them show a relationship between business results and the human capital processes.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Figure 2.4: The human capital Development framework

Source: Susan Cantrell, et al, 2006 Measuring the value of human capital investments: the SAP case

Can employers with bad human resource practices attract good employees? Let us see what it takes.

2.2.3.3. What attracts and retains employees in organizations

Much has been done in the area of recruitment and employees retention. According to Management today, paying more salaries than competitors is not the best way to attract talented employees. Company histories and values («signature experience») make a difference. There are people who feel affinity to them, rather than just because they pay more or offer better benefits. Pay and benefits matter, but the choice of job and engagement and commitment at work depends on the coincidence of an individual's preferences and aspirations with those of the organization. Such companies "know their current and future employees as well as most

Susan Ward², drawing from her business experience, she suggested many ways of attracting talented employees, most especially in small businesses. These include employee benefits like , medical and dental coverage, feeling for employees lifestyle, flexible hours, chance to develop new skills, incentive programs, profit sharing, widening the scope for advertising, hiring students, getting involved in community programs, etc ( http://sbinfocanada.about.com/od/humanresources/a/attractemployee.htm).

As for retention, many theories were suggested to explain why employees would feel at home as they perform to the company expectations.

Frederick Winslow Taylor (1856 - 1917) put forward the idea that workers are motivated mainly by pay. Elton Mayo (1880 - 1949) with his Human Relation School of thought believed that workers are not just concerned with money but could be better motivated by having their social needs met whilst at work. He therefore suggested better communication between managers and workers greater manager involvement in employees working lives and teamwork. ( http://tutor2u.net/business/gcse/people_motivation_theories.htm).

Abraham Maslow (1908 - 1970) along with Frederick Herzberg (1923-) introduced the NeoHuman Relations School in the 1950's, which focused on the psychological needs of employees. Maslow put forward a theory that there are five levels of human needs which employees need to have fulfilled at work. As a result employers were urged to offer different incentives to workers in order to help them fulfill each need. Noteworthy is that workers are not all motivated in the same way and do not all move up the hierarchy at the same pace. ( http://tutor2u.net/business/gcse/people_motivation_theories.htm).

² Susan Ward and her partner run Cypress Technologies, an IT consulting business, providing services such as software and database development.

Later, Frederick Herzberg (1923-) came up with a two-factor theory of motivation where he argued that some factors motivate employees to work harder (Motivators) while the others would de-motivate an employee if not present but would not in themselves actually motivate employees to work harder (Hygiene factors). He thus recommended some of the methods managers could use to achieve this are job enlargement - workers being given a greater variety of tasks to perform (not necessarily more challenging) which should make the work more interesting, job enrichment - involves workers being given a wider range of more complex, interesting and challenging tasks surrounding a complete unit of work. This should give a greater sense of achievement; and empowerment means delegating more power to employees to make their own decisions over areas of their working life

Indeed, some employees are happy with being exposed to all the functions of the organization through job rotation. Reported advantages of this practice include burnout reduction³, increased employee satisfaction, increased employee motivation, organizational commitment ( http://www.brighthub.com/office/entrepreneurs/articles/55274.aspx#ixzz0wQZ50wQJ).

Indeed, supervision quality is instrumental in attracting and retaining employees. Supervision is an extremely vital part of a workplace that intends to maximize its success potential. It naturally follows, then, that poor supervision in a workplace is among the primary obstacles to achieving potential successes by a business. After all, employees, no matter their task, must have the proper instruction and training to ensure that they are doing their jobs correctly, and with minimal risk of error or injury. After the initial training has been completed, supervision remains necessary for continuing skill and knowledge development among employees. It is for this reason that many businesses today refer to their supervisors as coaches ( http://www.anonymousemployee.com/csssite/sidelinks/poor_supervision.php).

3 When employees perform the same job functions each day without variation, they are likely to experience greater feelings of fatigue, apathy, boredom, and carelessness

When a company has poor supervision, there is not enough responsibility for taking action for the prevention of problems, mistakes, accidents, and injuries. Poor supervision removes a very important part of the employee support process, eliminating the opportunity for reference, learning, and safety. Poor supervision also opens the door for unethical behaviors within a company. With poor supervision, employees commonly feel that their work is not valued by the company, and loyalty is difficult to form - if it forms at all. Without loyalty, employees are more likely to deviate from acceptable business practices. Such activities can include theft, decreased employee effort, using equipment without authorization, and falsifying documents, among other things ( http://www.anonymousemployee.com/csssite/sidelinks/poor_supervision.php).

To avoid poor supervision in your business, you should consider supervisors not necessarily to be rule enforcers, but instead, they should be employee support people. They are the individuals who can assist employees when their work can be improved through different techniques. They impart safety knowledge and are the people to whom employees can come if they have questions and concerns about their tasks. A good supervisor should be approachable and a good people-person who knows the different equipment and jobs required by the employees, and is willing to help employees achieve ( http://www.anonymousemployee.com/csssite/sidelinks/poor supervision.php).

If a supervisor is not present enough, or is too overbearing, then the reaction from employees will only be fear, resentment, and displeasure in their work. The productivity will not be as good, and the employee turnover will increase ( http://www.anonymousemployee.com/csssite/sidelinks/poor_supervision.php).

In the same development, a recent Society for Human Resource Management (SHRM) press release revealed the answer to the question of what people plan to do when the job market rebounds. When employees were asked why they would start searching for a new job, 53% reported to be driven by better compensation and benefits, 35% cited dissatisfaction with potential career development while 32% said they were ready for a new experience ( http://humanresources.about.com/cs/retention/a/turnover_2.htm).

In the same survey, HR professionals were asked which programs or policies they use currently
to help retain employees. 62% said they provide tuition reimbursement, 60% offer attractive

2.2.4. Human Capital in Africa: Focus on Rwanda

Lacy, Arnott and Lowitt, (2009), observe that in developing countries, companies that offer above-average working conditions and health-care benefits can more easily find skilled employees in areas with limited educational systems. Indeed, in the face of an aging workforce and global competition for talent, organizations are finding it more and more difficult to attract and retain the most qualified employees.

Unfortunately, Nkhwa, (2005), observes that despite the fact that Africa has been regarded as a land of opportunity and endowed with natural resources since colonial era, it has not been translated into proper human capital management practices.

2.2.4.1. Structure of Rwanda's Human Capital

Rwanda's history is marked by policies and activities that were not conducive to the development of human capital. Ever since her long history, Rwanda's human capital development was characterized with lack of focus and proper investment at all levels of education and training. During colonial periods no attention was given to human capital development, surprisingly, the period after independence, cosmetic reforms that were made to the education sector, especially in 1979 and 1981 did not correct errors. It is unimaginable, but only 0.5% of Rwandese population are university graduates, with a 4% average in Africa, yet for a country to move towards sustainable growth, there is need of at least 30% graduates in her population (Laurence, 2009).

The genocide of 1994 even made the situation worse since many professional Rwandans were either killed or fled into other countries. Post 1994, witnessed efforts to adjust the matter. With

Vision 2020, one of pillars is «human resource development and a knowledge based economy» (The Republic of Rwanda, 2000).

Rwanda has also decided to build a knowledge-based and technology-led economy. In this context, the aim of education is «to combat ignorance and illiteracy and to provide human resources useful for the socio-economic development of Rwanda» (Ministry of Education 2002:8). Ministry of Local Government (MINALOC) is responsible for the execution of decentralization policy, planning and implementation of education activities in the provinces and district levels and administration of learning institutions. Ministry of labor (MIFOTRA) sets salary levels and conditions of service (Muganga L, 2009)

According to the Skills Audit Report, 2009, Rwanda's human capital is concentrated in a few occupations. Education dominates --accounting for 60 % of the total skilled workforce. Agriculture accounts for another 15 %, that is, a combined 75 percent by only two occupations. It is also extremely bottom heavy--the artisan cadre constitutes three quarters of the skill base In addition, it deviates from the normal pyramidal structure i.e. widening progressively towards the base. This is on account of a particularly weak technician cadre that, at only 8 %, is about half the size of the professional cadre (The Republic of Rwanda, 2009).

The report observes that these structural imbalances are reflected in all sectors i.e. public, private and civil society and in most occupations. There are however, some particularly striking ones on account of severity and importance. The most striking is the insignificant base of both professional and technical skills in building and construction. The high level skills are also extremely weak in agriculture/animal health and agro-industry fields. The hospitality field is very weak at the technical cadre (The Republic of Rwanda, 2009).

The skill audit validates the observation that Rwanda has an acute shortage of human capital. The private sector has the most acute deficit, equivalent to 60 percent of short-term need. The public sector deficit is estimated at 30 percent and civil society at 5 percent. The skill deficit exists at all levels but is most acute at the technician cadre, where the gap is 60 percent of requirement. Shortage of professional and artisan cadre skills is estimated at 48 % and 36 %

respectively. Management cadre shortfall is the lowest at 12 % of requirement. Shortage of scientific skills is generally more acute, although they are by no means the only ones. The only significant sectors for which acute skill gap is not reported are public administration, law and to a lesser extent education.

The range o f the skill deficit in the private sector is also quite wide. Unlike the public sector where the deficit is predominantly in the professional cadre, shortage of artisanal cadre (i.e. skilled workers) is more pronounced. The other notable feature is that the private sector deficit is most acute in the key sectors of the economy, namely, tourism, construction, agriculture, finance and mining.

The Skills Audit Report highlights the depth of the shortage of human capital in Rwanda and confirms that capacity - in terms of quantity and quality - is a critical challenge to the development and competitiveness of the country. As the experience from Singapore, Tunisia, Japan, South Korea, Malaysia and South Africa indicates, the competitiveness of nations in today's globalized, technology-driven world, economic growth and development depend on the quality and quantity of the human stock that a country has. The quality and quantity of human capital is the base upon which technological, economic and social advancements are based, (Human Development Report, 2008; World Bank Reports, UNESCO Reports). On this view, the rapid development of human capital is Rwanda's most pressing development challenge.

2.3. WHAT IS MICROFINANCE? / MICROFINANCE INSTITUTION?

There is no anonymously agreed upon definition of microfinance. Let us review the following definitions. Microfinance is the provision of small loans (microcredit) to poor people to help them engage in productive activities or grow very small businesses. It may include a broader range of services, including credit, savings, and insurance ( www.pbs.org/wgbh/rxforsurvival/glossary.html).

According to Deardorff's Glossary of International Economics, microfinance refers to
«institutions that specialize in making very small loans to very poor persons in developing

countries. Instead of using collateral to assure repayment, these lenders harness social pressure within the borrower's community. Originally done on a nonprofit basis, it is now being done increasingly by for-profit companies» ( http://www-personal.umich.edu/~alandear/glossary/m.html).

2.3.1. Principles of Microfinance

According to the Consultative Group to Assist the Poor, the following are principles of microfinance. These principles were endorsed by the Group of Eight leaders at the G8 Summit on June 10, 2004 ( http://www.globalenvision.org/library/4/1051).

First, poor people need a variety of financial services, not just loans. Research shows that the poor need flexible, convenient and affordable financial services that are convenient, flexible, and affordable. But they also need other services like savings, insurance, and cash transfer services ( http://www.globalenvision.org/library/4/1051).

Secondly, microfinance fights poverty well. Microfinance services feel poor families and help them plan for the future through investments in better nutrition, housing, health, and education ( http://www.globalenvision.org/library/4/1051).

Thirdly, microfinance means building financial systems that serve the poor. The biggest share of the world population is poor and cannot deal with classic banks. Microfinance should therefore be integrated in the financial mainstream to reach this majority ( http://www.globalenvision.org/library/4/1051).

Fourthly, unlike what majority may think, the poor proved to be credit worthier than the rich. This is what makes the microfinance sector sustainable. The challenge is that lender should offer services that are more useful to the clients, and finding new ways to reach more of the unbanked poor ( http://www.globalenvision.org/library/4/1051).

Fifthly, microfinance is about building permanent local financial institutions. For this to exist
there is need to mobilize for local savings, give loans and provide other services. As local
institutions and capital markets mature, there will be less dependence on funding from donors

Sixthly, microcredit is not always the answer. There should therefore availability of other tools to supplement microcredit like employment and training programs, or infrastructure improvements ( http://www.globalenvision.org/library/4/1051).

Seventhly, interest rate ceilings hurt poor people by making it harder for them to get credit. Experience shows that when governments regulate interest rates, they usually set them at levels so low that micro-credit cannot cover its costs, so such regulation should be avoided. At the same time, a micro lender should not use high interest rates to make borrowers cover the cost of its own inefficiency ( http://www.globalenvision.org/library/4/1051).

Eighthly, the role of government is to enable financial services, not to provide them directly. Its job is to put in place the environment conducive for business ( http://www.globalenvision.org/library/4/1051).

Ninthly, donor funds should complement private capital, not compete with it. This should be given on a temporary basis. The ultimate end is to see no financial institutions run by grants ( http://www.globalenvision.org/library/4/1051).

Tenthly, the key bottleneck is the shortage of strong institutions and managers. Public and private investments in microfinance should focus on building this capacity, not just moving money.

The last principle is that, microfinance works best when it measures--and discloses--its performance. There should be transparency regarding financial information and social information ( http://www.globalenvision.org/library/4/1051).

2.3.2. Advantages of Microfinance Institutions

The documented success in terms of outreach and the increasing popularity of MFIs is
attributable to a variety of factors - both economic and humanitarian. From an economic

perspective, MFIs provide superb opportunities to correct both capital market failure and efficiency loss due to central planning by governments. This coupled with the direct aid to the poor is the duality that makes microfinance so desirable ( christopher.darrouzetnardi.net/experiences/de.microfinance.doc).

Capital market correction by MFIs operates in three ways. The first is the lack of access to capital by many poor people in LDCs. This forces them to face strict, if not absolute, borrowing constraints. Small businessmen in LDCs often cite lack of access to capital as a primary reason for their inability to expand business. By providing financial services MFIs help correct borrowing constraints ( christopher.darrouzet-nardi.net/experiences/de.microfinance.doc).

The second way MFIs correct capital market failure is by increasing the efficiency of providing loans and subsequent capital investment. MFIs are able to screen potential borrowers. Most commercial banks lack the resources or economic incentive to screen potential borrowers. MFIs are also willing and able to advise borrowers financially. Generally, this involves offering simple operational or entrepreneurial recommendations. A final manner in which MFIs can benefit financial markets in LDCs is their ability to coordinate loans from the country's commercial institutions. Even if not recovering costs, MFIs do receive donations and hence can enter into sound financial arrangements with domestic financial institutions. Through this conduit, countries are able to expand their financial infrastructure ( christopher.darrouzetnardi.net/experiences/de.microfinance.doc).

Foreign aid in the form of microfinance allows for a circumvention of inefficient central planning by recipient country governments. MFIs stand to utilize donations more efficiently compared to LDCs who either choose to central plan or have a history of central planning. The crippling effect of these policies has been to force small private businesses into the informal sector (Douglas Snow & Terry Buss, 2001). By reintroducing individuals into the formal economy by the way of business expansion, MFIs foster economic growth ( christopher.darrouzet-nardi.net/experiences/de.microfinance.doc).

From a humanitarian perspective MFIs provide great benefits to the poor. These benefits include
increased income, an end to handout dependency, and in general terms poverty alleviation.

2.3.3. Who Are the Clients of Microfinance Institutions?

Microfinance clients are often described according to their poverty level - vulnerable non-poor, upper poor, poor, very poor. This can obscure the fact that microfinance clients are a diverse group of people - and require diverse products. While women clients make up a majority of clients - and in some instances comprise 100 percent of an MFI's clientele, 33 percent of all microfinance clients are men ( http://www.cgap.org/p/site/c/template.rc/1.26.1304/).

These clients operate small businesses, work on small farms, or work for themselves or others in a variety of businesses - fishing, carpentry, vegetable selling, small shops, transportation, and much more. Some of these microfinance clients are truly entrepreneurs - they enjoy creating and running their own businesses. Others become entrepreneurs by necessity when there are few jobs available in the formal sector. Indeed, some clients have been helped to graduate out of poverty ( http://www.cgap.org/p/site/c/template.rc/1.26.1304/).

Success in reaching poorer people with microfinance is determined by the mission of a microfinance institution, and its ability to translate that mission into effective products and services. With the industry's renewed focus on social performance - the term used within the microfinance industry to mean the effective translation of mission into action - we expect to see more clients over all, and very poor people in particular, served with appropriate, varied products from a variety of institutions ( http://www.cgap.org/p/site/c/template.rc/1.26.1304/).

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 2.3.4 Types of microfinance institutions

Ledgerwood (1999), discusses three types of microfinance institutions, namely formal, semi formal and informal providers. Their defining characters have been discussed below:

Formal institutions are defined as those that are subject not only to general laws and regulations but also to specific banking regulation and supervision. They include public development banks, private development banks, savings banks and postal savings banks, commercial banks, non bank financial intermediaries.

Semi formal providers are those that are formal in the sense that they are registered entities subject to all relevant general law including commercial law, but informal insofar as they are, with few exceptions, not under banking regulations and supervision. They include credit unions, multipurpose cooperatives, NGOs, some self help groups.

Informal providers are those which are neither subject to commercial law neither to bank regulation and supervision. In other words, litigations there from cannot be dealt with in courts. These include pure moneylenders, most self help groups, rotating savings and credit associations, families and friends.

2.3.5. Microfinance in Rwanda 2.3.5.1. Genesis

The microfinance sector in Rwanda is relatively young. Although small self-help peasant organizations (such as tontines and ibimina) have existed for some time, the sector formalization process started with the creation of the first Banque Populaire in 1975. The rate of bank utilization at the national level is still low, with only around 10% of the population owning an account with a formal financial institution in June 2006. On the other hand, MFIs including Banques Populaires, have created a large network. By June 2006, 93% of all branches opened by the credit institutions in the country were MFIs (rather than commercial banks) and these served more than one million customers. It is clear, therefore, that MFIs have a very significant role to play in enabling the majority (The Republic of Rwanda, 2007).

The Government of Rwanda fully recognizes the role that the microfinance sector plays in providing financial intermediation most especially to low income earners. This is a critical tool to the attainment of the goals of Government's Vision 2020 program, which consists of transforming Rwanda from a low-income into a medium-income country with a dynamic, diversified, integrated and competitive economy (The Republic of Rwanda, 2007).

She maintains that the microfinance sector will strengthen the role of the private sector in the development of the country through increasing and diversifying investment opportunities. The microfinance sector shall help build a solid business community of entrepreneurs, focused on industrial and service sectors, including the financial, tourism and Information Communication Technologies (ICT) sectors. It will thus help to generate employment and to diversify sources of income in rural areas, thereby contributing to the improvement of the Rwandan economy and the sustainable reduction of poverty (Republic of Rwanda, 2007).

Niyonsenga and Zaninka (2007) observe that though the Rwandan Microfinance sector has experienced rapid growth in the last few years and has made significant contribution towards poverty alleviation in the country; the sector has recently experienced some difficulties with some institutions experiencing high defaults. The collapse of one of the biggest COOPEC and the closure of some MFIs and COOPECs by the Central Bank in June 2006 has led to erosion of confidence on the part of unprotected depositors and the general public. If unchecked, this may have adverse effects on the financial sector in general. The sustainability is still a big problem in this sector and different strategies should be developed

The study of Mayele, 2006, was rather more specific. According to him, the SWOT Analysis of the Rwandan Microfinance was as follows:

Strengths include the fact that traditionally Rwandans used to practice some informal microfinance, so using the same scheme in a more formal way faces little resistance. In the same line of argument, microfinance responds to needs of many rural people who have been ignored by the formal banking sector because they cannot afford heavy collaterals required. Especially, microfinance was already there provided by the Banque Populaire. However, the aftermath of the

1994 genocide highlights a need to assist the poor with micro credits so that they can be more and more self reliant.

Weaknesses included the fact that microfinance was not a domain of professionalism by many practitioners. This was supported by the findings of Kagishiro (2007) where he attacked lack of professionalism as a major reason as to why many microfinance institutions had closed doors. More to that, there is lack of business mindset whereby there was no clear distinction between business and owners.

Opportunities were highlighted as well. The Rwanda Microfinance policy was looked at as one of mechanisms to streamline the operations in the sector, thus more chances to instill confidence among clients. It was going to be really supportive. The projected microfinance forum was going to be an opportunity whereby institutions were going to enjoy capacity building and advocacy by the Association de Microfinance.

Threats were talked about. For example, the new policy was somehow criminalizing informal microfinance (Mayele, 2006), indeed, it was going to take some time to restore hope among microfinance clients, (Justin, 2007).

It has been observed in the Skills Audit Report that one of the needy sectors is finance (The Republic of Rwanda, 2009). Indeed, the main challenge of the Rwandan financial sector is inadequate institutional, organizational, and human resources capacity.. This poses a formidable challenge to the objective of Rwanda becoming a regional financial hub. This is because, «No nation becomes great when majority of her nationals are mainly idle, semi-skilled or out rightly unskilled». ( http://allafrica.com/stories/200711270316.html).

In one of articles written by Saul, he observes that according to the recent report by the National Bank of Rwanda (NBR), the banking sector is facing a serious problem of unprofessionalism. This observation was shared by Banque Populaire du Rwanda's (BPR), CEO, Ben Kalkman, who thought that the sector indeed lacked trained professionals. ( http://allafrica.com/stories/200912220038.html).

One of strategies is to hire best performing students from some of Rwanda's universities, to reduce the big number of un-professionals in the financial sector. http://allafrica.com/stories/200912220038.html).

Banks are experiencing the shortage of professionals, yet they are dominating players in the financial sector of Rwanda. After all they can give attractive salaries and other benefits. What can we expect of Microfinance Institutions? This is why it is interesting to carry out such a research to see the image of human capital management in that sector.

2.4. RESEARCH GAP: WHY THIS RESEARCH?

This chapter visited some theories on microfinance and on human capital. Microfinance is built on principles that seem to be as well tools for human development because microfinance offers its products to mostly the poor and has proved that microfinance can sustain itself. Many problems in microfinance can, however be cited, like the one which is our research's subject matter (human capital management). Has the above reviewed literature solved this problem? Or to put it in other words, has the above theory successfully linked theories on microfinance and the human capital management issues involved in the management of MFIs? The answer is no. This therefore sets an opportunity for this research. It is going to link both concepts in the Rwandan context. However, let us first discuss in the 3^rd chapter the methodology we shall use to get there.

3.1. INTRODUCTION

This research is mostly more qualitative than quantitative. This approach allows the exploration of human capital management challenges and prospects. It enables the research to learn about what people feel in terms of what they do and what is done for them.

3.2. PROBLEM STATEMENT

The Government of Rwanda is committed to improving the lives of its population. This would ensure that enrollment in agriculture decreases from the current 90% to a certain percentage. One of ways to achieve this is to support the development and sustainability of small and medium enterprises (SMEs). However, experience shows that these need not big loans, they rather need micro funds, which calls for the need of serious microfinance institutions. Indeed, majority of SMEs all not equipped to satisfy the requirements of classic banking institutions when it comes to loans requirements, i.e, collateral, etc.

In Rwanda, however, the microfinance movement was crowned with a bad reputation because clients' deposits proved to be insecure in the 2006 microfinance crisis. The NBR reaction was to close some of them which were bankrupt. As a result, thousands of clients and several MFI partners were also affected by the closure. ». Just to name a few, consequences were employees had to be asked to go home, companies that had given services to them lost, investors' money was lost, depositors' money was lost, the National Bank of Rwanda lost because it had to refund depositors, above all, the consumer confidence in microfinance eroded.

Official information and some research conducted attributed this crisis to, among other things,
lack of appropriate technical and managerial skills. Human capital management was a core issue.
It is against this backdrop that the study on «Human Capital Management in Rwanda: Challenges

and Prospects for Microfinance Institutions» will be done in a bid to map progress made so far, challenges encountered and the envisaged future.

3.3. RESEARCH OBJECTIVES

Research general objective is to investigate challenges and prospects of MFIs in light of Human Capital management. Specific objectives are to analyze the capacity of MFIs to attract skillful employees; analyze the capacity of MFIs to retain skillful employees; and analyze external factors that influence MFIs' capacity to attract and retain skillful employees.

3.4. THEORETICAL FRAMEWORK

This guides this study as one wants to analyze dependent and independent variables as follows:

3.4.1. Research variables

Dependent variables are (a) organizational capacity to attract skilled employees, and (b) organizational capacity to retain skilled employees.

They depend on independent variables that include dream to work with MFIs; education level; education specialization; length of professional experience; levels of employment in Rwanda; capacity to effectively and efficiently recruit qualified employees; capacity to pay good salaries and benefits; existence of teamwork in MFIs; quality of supervision; organization ownership; availability of funds; microfinance popularity; availability of resource people; employees' age; management of the training programs; promotion management; performance evaluation; availability of qualified employees and career path clarity in microfinance.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 3.4.2. Research Assumptions

The study was conducted with the assumption that microfinance is a young sector in Rwanda. It is attracting enough attention from the GoR which is working to put in place a supportive environment for business. Human capital management, however, is not yet taken on a serious note. It is influenced much by the financial capacity of MFIs. The former, however, offer a challenging working place, which, when good conditions are availed, is likely to attract employees who are ready to learn and face work related challenges.

3.4.3. Research limitations

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 3.5. RESEARCH METHODOLOGY

3.5.1. Research type

According to Cresswell (1994) "a qualitative study is defined as an inquiry process of understanding a social or human problem, based on building a complex, holistic picture, formed with words, reporting detailed views of informants, and conducted in a natural setting» ( http://www.computing.dcu.ie/~hruskin/RM2.htm).

Generally, «qualitative research is used to help us understand how people feel and why they feel as they do. Samples tend to be smaller compared with quantitative projects that include much larger samples.» ( www.marketresearchworld.net/index.php?Itemid ).

3.5.2. Target population and sampling methods

As of September 15^th, 2009, there were 96 licensed MFIs in Rwanda. These are the study population. They have, however, different legal statuses, that is, 83 cooperatives (COOPEC), 2 private limited liability companies (SARL) and 11 public limited liability companies (SA). However, only SA was studied. The reason is because cooperatives are perceived to be in small businesses while SARL and SA are in a «serious business».

IMF UNGUKA S.A. was studied because it is 100% financed by individual shareholders. Indeed, it was awarded more than once by various raters. As of DUTERIMBERE IMF S.A, it was begotten by DUTERIMBERE a.s.b.l, a local non profit driven organization serving women entrepreneurs, as of now, it is one of local MFIs which is serving, mostly women. Both of them, however, were in existence by 2006 and survived the Rwanda microfinance crisis.

40 judgmentally selected respondents participated in the filling of questionnaires, 20 from each MFI. Managing Directors filled questionnaires too. Focus group was also used to gather information from other respondents while Human Resource Managers were interviewed. They were selected on a judgmental basis.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 3.5.3. Data collection instruments

Multiple sources of data were utilized to ensure validity as well as to minimize potential biases in drawing conclusions. Four principal data collection instruments were utilized for this research. They are summarized in the following table:

Secondary	Documentation	1. IMF UNGUKA S.A's business plan 2010 - 2014 2. DUTERIMBERE IMF SA business plan 2010 - 2014 3. Government publications 4. Textbooks 5. Official reports 6. Online resources
Primary	Focus group	Experts were interviewed: 1 from the National Bank of Rwanda (NBR), 1 from NBR licensed auditors, 1 former MFI manager who is currently a consultant, and 1 from Association of Microfinance of Rwanda.
Primary	Oral interviews	They were conducted with managers who have human resources management under their responsibilities
Primary	Questionnaires	Filled by 40 respondents and 2 MFI Managing Directors

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 3.5.4. Data presentation and analysis tools

To ensure valid results, the data were converted and processed. A thorough examination of questionnaires and interview responses was done to ensure consistency, accuracy and completeness of the responses. Using qualitative and quantitative data handled and analyzed, the conclusion was taken basing on the relationship found out between the dependent and independent variables. Briefly, the following steps were followed:

This was the first task in data processing. It consisted of examining errors and omissions in the collected data and making necessary corrections. It was partly carried out in the field and finally completed after fieldwork. It involved pursuing through completed interviews schedule and anomalies in reporting and recording rectified. It was done for responses as entered in the questionnaire and where it contained only a partial or vague answer. It means that some questions were not answered as expected, and the responses were not consistent with the questions. So, the researcher had to relate the answers to their respective questions and this ensured coherent and logical answers.

After the editing of the data, the researcher had to thorough the code the data. Coding was used in this study to summarize data by classifying the different respondents given into categories.

A code sheet was prepared by writing down all responses that were similar or closely related for open-ended questions and coding them. The code established was as exhaustive as possible and included all the vital responses. The coding frame chosen had to be in line with the objectives of the study.

Before coding is finalized, the researcher checked thoroughly in order to detect any coding differences and eliminate ambiguous or irrelevant cases.

So, basically, coding thus was done in 2 phases: Specifying the different categories of classes into which the responses were to be classified; and allocating individual answers to different categories.

After editing and coding, the summarizing data by constructing frequency distribution table of answers to each closed-ended question had to be carried out. In fact, this is putting data into some kind of statistical table with percentage. The task is executed by drawing a matrix of codes in a such way that questions of each coding frame are set against the respondents until all items in the code sheet helped the researcher interpret the codes in the matrix using tally symbols to get frequencies for each question. The matrix of code helps a lot to gain in making comparisons as well as making frequencies using tally system.

The calculation of percentages was done. This was a number of the sample size then multiplied by a hundred divided by the frequency of the respondents. Statistical analysis was done almost for all tables.

Another statistical analysis element is summation. In this regard, the research is able to draw conclusions from the data processed and presented in the table, after relating these findings from the field and theoretical literature from various sources.

Dependent variables are capacity to attract skilled employees and capacity to retain skilled employees.

availability of funds; microfinance popularity; availability of resource people; employees' age; management of the training programs; promotion management; performance evaluation; availability of qualified employees and career path clarity in microfinance.

3.5.5. Validity and Reliability

Valid and reliable results could not be reached accidently. This required the right and reliable strategy to collect data. The well structured questionnaire are distributed to respondents chosen as the sample, also other approaches are used to support the results from the questionnaire responses, such as interview, and focus group.

In this chapter, tools and techniques used to collect, analyze and present data have been discussed. Now is time to discuss the data analysis and the research findings. This is going to be the job in the next chapter.

4.1. INTRODUCTION

This chapter presents, analyzes and discusses data collected for this research. Data presented here was collected in various ways including questionnaires, interviews and secondary data analysis.

4.2. DATA FROM EMPLOYEES 4.2.1. Response rate

MFI	DUTERIMBERE IMF SA			UNGUKA IMF SA
Distributed/ Returned	Distributed	Returned	Response rate	Distributed	Returned	Response rate
Total	20	20	100%	20	20	100%

Table 4.1 shows that the response rate was 100%, this gives confidence and reliability to the quality of data collected and analyzed to meet objectives of this research.

Gender	DUTERIMBERE IMF SA		IMF UNGUKA SA
	Frequency	Percentage	Frequency	Percentages
Male	12	60	15	75
Female	8	40	5	25
Total	20	100%	20	100%

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Source: Primary data

As can be read from the table above, respondents from DUTERIMBERE IMF SA were 60% and 40% male and female respectively. Regarding IMF UNGUKA SA, they were 75% and 25% male and female respondents respectively.

In both cases, though female respondents appear to be less than male respondents, the number of female employees is good enough to give balanced information.

N of years	DUTERIMBERE IMF SA		IMF UNGUKA SA
Less than 1 year	5	25	7	35
Between 1- 2 years	9	45	3	15
2 - 5 years	3	15	7	35
Beyond 5 years	3	15	3	15
Total	20	100	20	100

At DUTERIMBERE IMF SA, 25% have less than 1year of experience, 45% have between 1 - 2years, and 15% have 2 - 5 years while 15% have more than 5 years. At IMF UNGUKA SA, however, 35% of respondents have less than 1 year of experience, 15% have between 1 - 2 years of experience, and 35% have between 2-5 years of experience, while 15% have beyond 5 years. Thus, a big majority have between 1 - 2 years of experience.

As can be seen, majority of DUTERIMBERE employees fall under between 1 - 2 years of
experience; In contrast, a big concentration of UNGUKA employees' experience fall under less
than 1 year (35%) and between 2 -5 years (35%). Both organizations have equal percentages for

employees having less than 1 year of experience. However, UNGUKA managed to attract and employ some employees who have between 2 and 5 years of experience. This experience could be from UNGUKA - since UNGUKA has been in existence for some 5 years - thus, implying capacity to retain employees for a long time as many started as both employees and shareholders.

For the case of DUTERIMBERE, however, the statistics send a message that a good number of employees started their career in microfinance. They did not resign from other organizations for the sake of pursuing a career in microfinance. That implies that in many cases, MFIs in Rwanda do not attract and retain employees with experience, except cases where employees start both employees and shareholders.

4.3.3. Education level

Education level	DUTERIMBERE IMF SA		IMF UNGUKA SA
Ordinary level	3	15	-	-
High school, Senior six	1	5	4	20
Diploma	2	10	2	10
Bachelors' degree	14	70	14	70
Total	20	100	20	100

At DUTERIMBERE IMF SA, 15% went for 0' level, 5% have high school leaving certificates, and 10% have diplomas while 70% have their bachelors' degrees. A big majority have bachelor's degrees.

At IMF UNGUKA SA, the sample staff's qualifications are as follows: 20% high school, 10% diploma, and 70% bachelors. The majority have bachelor's degrees.

The above statistics show that microfinance organizations can attract fresh graduates. People with Bachelor's degrees were more in both cases. Organizations need employees with good education background, Rwandan MFIs are capable of attracting such people, which apparently sounds good, the only problem being that it could bring about challenges retaining such people after they have had a good professional experience.

4.3.4. Age of respondents

Age brackets	DUTERIMBERE IMF SA		IMF UNGUKA SA
15 - 25	0	0	3	15
25 - 30	7	35	9	45
30 - 40	11	55	6	30
40 - 50	2	10	2	10
Total	20	100	20	100

At DUTERIMBERE IMF SA, 35% fall between 25 - 30years, 55% fall between 30 - 40 years while 10% fall in the range of 41 - 50 years. It can be deduced that the staff is generally young.

At IMF UNGUKA SA, 15% fall between 15 and26, 45% fall between 26 - 30years, 30% fall between 31 - 40 years while 10% fall beyond 40 years. The staff is generally young as well.

The above statistics show that majority of employees are young. Young, being relatively explained, it is normal in Rwanda to have one's first job at 30 because the current generation experienced many stumbling blocks in their education endeavors.

This implies that microfinance institutions do attract young men and women who have just graduated from bachelor's degree programs or majority of their employees join as senior six leavers and register evening classes as they are working.

Attracting fresh graduates is not necessarily good or bad. Employees may be young and
experienced much as they may lack professional experience. In case they are experienced, there
is no issue. One may even say that fresh from school is not always bad. However, one does not

always need fresh employees without a professional experience. Why they come in big numbers also is interesting. It may be because they are dying to have their first employment. They do not take care whether the employer is good or bad at this level of their career.

4.3.5. Area of specialization

Area of specialization	DUTERIMBERE IMF SA		IMF UNGUKA SA
Economics	1	5	0	0
Accountancy	14	70	17	85
Other	5	25	3	15
Total	20	100	20	100

At DUTERIMBERE IMF SA, 5% studied economics, studied 70% management /accountancy while 25% did other courses like IT. At IMF UNGUKA SA, 85% studied accountancy while 15% took other specializations which include sociology, IT, Law.

Microfinance institutions need or employ people who studied accountancy / management. They also need other specialization like economics, IT, Law, sociology but in fewer numbers.

4.3.6. Date of employment (with current employer)

Date	DUTERIMBERE IMF SA		IMF UNGUKA SA
2004	1	5	0	0
2005	0	0	1	5
2006	0	0	3	15
2007	5	25	7	35
2008	3	15	4	20
2009	4	20	3	15
2010	7	35	2	10
Total	20	100%	20	100%

At DUTERIMBERE IMF SA, 5% came in 2004, 25% came in 2007, 15% came in 2008, 20% in 2009 while 35% came in 2010. In other words only 5% started with the institution in 2004. The organization has, indeed been hiring as it grows.

At IMF UNGUKA SA, we have the pattern that follows: 5% in 2005, 15% in 2006, 35% in 2007, 20% in 2008, 15% in 2009 and 10% in 2010. Only 5% started with the organization, like in the case of the competitor, the organization has been hiring as it grows.

UNGUKA could not hire in 2004 as it was non - existing. Microfinance organizations hire as they grow. However, reading from these statistics, in both cases, employees who started with the organizations are very few. It might mean the organization had need for few employees or it started with many people who dropped along the way.

4.3.7. Number of posts occupied

Number of posts	DUTERIMBERE IMF SA		IMF UNGUKA SA
1	16	80	4	20
2	4	20	6	30
3	0	0	7	35
4	0	0	2	10
6	0	0	1	5
Total	20	100	20	100%

At DUTERIMBERE IMF SA, 80% occupied just 1 position while 20% occupied 2 positions. In a sharp contrast, IMF UNGUKA SA saw many employees rotating from position to position. 20% occupied just 1 position, 30% occupied 2 positions, 35% occupied 3 positions, and 10% occupied 4 positions while 5% occupied 6 positions.

It can be deduced that there is little or at least non - existing internal mobility in DUTERIMBERE while it is a way of doing business at UNGUKA. Failure to rotate employees in organization prevents a number of advantages.

As a result, employees who perform the same job each day without variation are likely to experience greater feelings of fatigue, apathy, boredom, and carelessness. This leads to decreased productivity, increased absenteeism, and increased likelihood of turnover. Employees are dissatisfied. They feel de - motivated, unhappy, and irritated, which are detrimental to productivity and above all, loss of organizational commitment. That means that microfinance institutions that do not foster employees' internal mobility / job rotation face more retention challenges.

4.3.7. How do MFIs recruit employees?

At DUTERIMBERE IMF SA, no case was found where the institution took a former intern or at least the must have heard of an employment opportunity for him / her to apply and compete; it was the same scenario at IMF UNGUKA SA. Both institutions advertise. In DUTERIMBERE 65% had seen a job advert while it is 75% in UNGUKA.

Their way of advertising was different, however, DUTERIMBERE advertises via newspapers and its website while UNGUKA just posts adverts on all its branches. While UNGUKA does not report any case where its adverts were not responded to, its adverts are likely to be seen by only its clients or its clients' relatives; who may explain the 15% had heard from friends in institutions.

Regarding headhunting, it never happened in DUTERIMBERE. It happened once in UNGUKA. The employee who skills were headhunted was interviewed and had this to say «management contacted me, we negotiated, and I gave them my proposal. I am satisfied since I believe they did their best to fix my salary as high as they could as far as their capacity is concerned⁴»

4 The employee who was headhunted is a Director of ICT. He was hired when the organization was going to computerize its operations.

4.3.8. How employees like their employer

Feeling	DUTERIMBERE IMF SA		IMF UNGUKA SA
Feeling	Frequency	Percent	Frequency	Percent
Strongly dislike	3	15	0	0
Dislike	3	15	1	5
Neither like nor dislike	1	5	0	0
Like	1	5	0	0
Strongly like	12	60	19	95
Total	20	100	20	100%

In DUTERIMBERE, 15% do not like working with the current employer at all, 15% somewhat like working with current employer, 5% neither like nor dislike, 5% like their employer while and 60% strongly like their institutions.

In UNGUKA, the scenario seems different. 5% do not like their institution while 95% reported to strongly like their employer. This may be explained by, among other factors, the fact that 40% of UNGUKA employees who were involved in this study happened to be shareholders in the same while none of DUTERIMBERE interviewed staff were shareholders.

Employees who do not like their organization, it does not need to be emphasized are like travelers in a car park. They are ready to leave any time the opportunity comes by. On the other hand, having employees who like their organization is all employers should look for.

Loyal employees are a great asset, they are good organizational citizens who are ready to defend its cause whenever, whatever the cost. One way of building up this positive attitude is through encouraging employees to be shareholders.

4.3.8. 2. Employees perception of supervision

	DUTERIMBERE IMF SA		IMF UNGUKA SA
Strongly dislike	0	0	1	5
Dislike	3	15	0	0
Neither like nor dislike	0	0	0	0
Like	6	30	1	5
Strongly like	11	55	18	90
Total	20	100%	20%	100%

In DUTERIMBERE IMF SA, 15% do not like the quality of supervision, 30% on the other hand like it while 55% strongly like it. On the other hand, however, 5% of UNGUKA's respondents strongly dislike the way supervision is done, 5% like it while 90% strongly like it.

Employees' supervision ensures that the assigned tasks are being carried out as per plans. The quality of supervision matters, it demonstrates one of the critical skills required from line managers: human relations skill. Supervision needs to strike some balance in such a way that employees will feel that managers trust them as they also note that they need to do what they are assigned with.

Good supervision, it has been discussed in the second chapter motivates employees and
maximizes their potential. Poor supervision, on the other hand, is not enough responsibility for

taking action for the prevention of problems, mistakes, accidents, and injuries. Poor supervision removes a very important part of the employee support process, eliminating the opportunity for reference, learning, and safety.

Employees feel that their work is not valued by the company, and loyalty is difficult to form - if it forms at all. Without loyalty, employees are more likely to deviate from acceptable business practices. Such activities can include theft, decreased employee effort, mismanagement, and falsifying documents, among other things.

4.3.8.3. Whether employees' dream has always been to work with MFIs Table 4.11: Had you ever dreamt to work with a MFI?

	DUTERIMBERE IMF SA		IMF UNGUKA SA
	Frequency	Percent	Frequency	Percent
Strong no	10	50	10	50
No	0	0	2	10
Neither yes nor no	4	20	1	5
Yes	5	25	0	0
Strong yes	1	5	7	35
Total	20	100%	20	100%

It was interesting to know whether employees were attracted and retained by their dream to work with MFIs. 50% had not at all that dream, after all, some say «it is a young sector», 20% were indifferent, 25% agreed while 5% strongly agreed.

In UNGUKA, however, 50% strongly disagree to have had a dream to work with MFIs, 10% disagree to have had such a dream, and 5% are indifferent, while 35% strongly agree to have dreamt working with MFIs.

In DUTERIMBERE, statistics show that the dream to work with MFIs has little capacity to attract and retain skilled employees. In UNGUKA, a half of respondents report to have had no dream at all. Like in case above, dream has no capacity to influence attraction and retention of employees with MFIs. Most especially, microfinance is a new business in Rwanda. There are no high probabilities of seeing many employees having dreamt to work in a sector they did not know well before.

4.3.8.4. Satisfaction of employees with training

expected to deliver. Employees without the right skills will have no business ownership, will be frustrated and will never be committed to organizational goals. It is, however, interesting to see in the above cases how employees are either satisfied or dissatisfied with training. MFIs in Rwanda will not growth and compete sustainably if they employ increasingly dissatisfied employees.

4.3.8.5. Employees perception of promotion fairness

	DUTERIMBERE IMF SA		IMF UNGUKA SA
Strongly unfair	-	-	1	5
Indifferent	5	25	1	5
Fair	5	25	5	25
Strongly fair	10	50	13	65
Total

In DUTERIMBERE, 25% are indifferent with the fact that promotion is fair; 25% agree, while 50% strongly agree. This shows that majority appreciate the promotion practices. In UNGUKA, however, the following statistics are displayed in the above table: 5% of respondents strongly disagree with the statement. 5% are indifferent, 25% agree while 65% strongly feel that promotion is fair.

How employees feel on what management does for them is critical. In this case, for example, if employees feel that managers are not fair in promoting employees, this is a seed of business death. Employees will not perform to their best as this has no link with the rewards.

Reading from the above statistics, nevertheless, UNGUKA seems to be doing better. When one probes into how they do it, the following come as answers:

Firstly, «UNGUKA does not attract outside potential employees before it is sure there internal staff members who can do the job. However, they must compete. The most successful will take post. Employees like this and believe that their promotion depends on how they perform their work and how much they can pass the recruitment test⁵».

Secondly, «employees who resigned may be taken back. This is, however, subject to some conditions. Their reason to resign must have no link with unethical behavior. If they can come and pass tests successfully, then they can be reintegrated⁶».

Thirdly, «it may be implied that when there are internal promotions, new vacancies are created. Its new recruits will take up lower positions⁷».

4.3.8.6. How employees perceive performance evaluation

Table 4.14: DUTERIMBERE IMF SA Employees perception of performance evaluation

In DUTERIMBERE IMF SA, 5% are in a strong disagreement, 15% are in disagreement, 15% are indifferent, 40% are in agreement while 25% are in a strong agreement. A fair majority do not appreciate the performance appraisal management at DUTERIMBERE IMF SA.

In UNGUKA, 10% are indifferent, 25% agree while 65% strongly agree. A big majority appreciate the performance evaluation at UNGUKA S.A.

Whatever the case, however, it can be read that microfinance institutions have challenges to do with realistically measuring performance. Institutions whose performance appraisal is not liked by employees are not good at retaining employees. This is because, employees not a fair feedback on what they are doing so that they can improve or strengthen the already positive side of their performance. Failing to do so may lead to resignations.

As a consequence, employees would rather like to join employers who have time to assess their performance realistically so that they can see their career growing positively. Unfortunately, the studied MFIs are not good at that.

4.3.8.7. Existence of teamwork in MFIs

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Table 4.30: DUTERIMBERE IMF SA employees' perception of teamwork

In this institution, 50% agree, 50% strongly agree. A very big majority appreciate that there is teamwork at DUTERIMBERE IMF SA.

In the same angle, 10% only agree while 90% strongly agree, thus UNGUKA SA is excellent in teamwork management. The statistics above speak out. It seems that the nature of work in microfinance required good teamwork. MFIs studied were good at that. This is good in as far as employee retention is concerned.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 4.3.8.8. Perception of salary and benefits

Table 4.32: DUTERIMBERE IMF SA employees' perception of their salaries and benefits

In DUTERIMBERE IMF SA, 65% strongly disagree, 10% disagree, 20% are indifferent, 5% agree. This shows that a very small minority believe that that their salaries and benefits satisfy them. Majority of employees being unhappy with the salary and other benefits, this is one of indicators that this institution cannot sustainably attract and retain skillful employees.

Regarding the perception of UNGUKA's employees, let us look at the table that follows:

Table 4.33: IMF UNGUKA SA employees' perception of their salaries and benefits

In IMF UNGUKA SA, 5% strongly disagree, 45% are indifferent, 15% agree while 35% strongly agree. Majority of employees are satisfied with the pay level. However, this sounds interesting, however, after knowing that their pays are not relatively higher than at DUTERIMBERE, employees interviewed said «we are involved in the decision making process. We know that our employer does its best to pay us in line with our financial capacity. We are confident we shall be paid more as our company grows⁸»

4.3.8.9. Probability of resigning after gaining enough experience Table 4.34: DUTERIMBERE IMF SA Employees leaving probability

Asked whether they would resign as soon as they have got enough experience, 25% agreed while 75% strongly agreed. At DUTERIMBERE IMF SA, almost every body is ready to quit as soon as a better alternative comes by.

In UNGUKA, on the contrary, 65% are not ready to quit, 5% would consider exploring new opportunities while 30% strongly agree that they will quit as soon as they have new opportunities.

IMF UNGUKA seems better than its competitor. Whatever the case, having 30% of employees ready to resign is not something that a serious employer should aim at. These figures send a message that microfinance employees are in most cases there to look for experience and then look for employment with other organizations. This means that, other factors remaining constant, MFIs are like nurseries. They are good at attracting employees without experience, they develop them - in the limits of their meager resources - and see them adjourning, which is detrimental.

When one looks at the organizational structures of both companies and asks how many vacancies are there, one tends to think there has massive resignations, which is not true. Rather, not all the posts are occupied. For example, currently 8 posts are being advertised at DUTERIMBERE IMF SA. These posts are HRM, Operations Director, Marketing, Legal Officer and 5 accountants. As for UNGUKA IMF SA, some 5 vacancies are there. These include the Lawyer, Marketing Director, Research and Product Development officer.

Surprisingly, these posts were never occupied before. This sends a message that MFIs are still growing. They have not yet reached their maturity stage. They keep hiring as need arise according to their business plans which they keep updating to accommodate current realities. To manage their meager resources, they hire only for urgent posts to meet the current demands of the organization and market.

The data presented and discussed above show a point of view of employees who participated in this study. What is the view point of management? Let us look at the following pages.

4.3. DATA FROM MANAGERS' 4.3.1. Some management Practices

STATEMENT	IMF UNGUKA SA	DUTERIMBERE IMF SA
Statement 1	5	5
Statement 2	5	3
Statement 3	4	5
Statement 4	3	4
Statement 5	5	4
Statement 6	5	5
Statement 7	2	1
Statement 8	4	4
Statement 9	1	1
Statement 10	5	4
Statement 11	1	2
Statement 12	2	3
Statement 13	5	1

Various statements were written and managers were asked to show to which extent they agree or disagree with them.

Both institutions strongly agree that they recruit qualified employees as evidenced by score 5 for both institutions. However, their claims seem to have no strong basis. It has been seen above (in section 4.3.4) that majority of employees recruited by MFIs are young and majority have no professional experience by the time they join MFIs as evidenced in section 4.3.2. It seems that being qualified means, among other things, to have the required degree, but microfinance experience is not an issue.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions Statement 2: Your institution always motivates its employees

In IMF UNGUKA SA, they claim to always motivate employees as evidenced by score 5, while in DUTERIMBERE management seems to be honest they do not motivate to their best as evidenced by score 3. This may be backed by the information from employees. In fact, when one compares information from employees, levels of satisfaction in IMF UNGUKA SA are better than in DUTERIMBERE IMF SA.

How do MFIs motivate? These companies have different ways of motivating their employees: At UNGUKA, there is a claim that managers are good coaches. While it is agreed that «paycheck is not good, they offer the «13^th month» bonus as decided by the general assembly. This is done only when they make good profits. So, employees do not want to miss it⁹»

They offer other advantages as well. For example, «each employee has a medical insurance with RAMA. We may also offer preferential loans to our employees. Above all, top management is transparent in all the endeavors. Employees know about every thing being planned¹⁰».

At DUTERIMBERE IMF SA, they also motivate employees through «performance based bonus. While this was started with loan officers, management reported that there are plans to extend this to everybody and that there was software which was going to help track individual performance¹¹».

IMF UNGUKA SA agrees they train to their best as evidenced by score 4 while in DUTERIMBERE IMF SA management strongly believes that they train their employees as evidenced by score 5. However, «their training is limited by a lack of availability of resource people and their financial capacity»¹².

IMF UNGUKA SA is not satisfied by the level of customer care (score 3) they extend to their clients while DUTERIMBERE IMF SA agrees they do their best (score 5). How does customer care link with human capital management? Employees are the first customers of any organization. Front office employees send more messages to customers than CEOs. The fact that IMF UNGUKA SA honestly is dissatisfied with the level of customer care may mean that they are not satisfied by the level of professionalism among their employees, they need more from their employees and management tries their best.

The same applies to DUTERIMBERE IMF SA but in a different degree of dissatisfaction. Linking this to strategic goals; may be its management believes that their customer care is enough considering the competitors' in real microfinance.

In IMF UNGUKA SA, management was in a strong agreement with the statement (score 5) while in DUTERIMBERE IMF SA management was in agreement (score 4). The reason why DUTERIMBERE IMF SA was just in agreement might be that by the time interview was conducted there, the strategic plan was still a draft pending to be validated by the general assembly in the near future. In any case, business planning done in microfinance sector, implying that they plan for the future of their business.

In both cases, MFIs strongly believe they have good human resource management policy as evidenced by score 5. This implies that, MFIs understand the importance of the HR manuals. This is a good starting point for employers who want to systematically manage their resources. The challenge is to translate them into real action.

IMF UNGUKA SA is in disagreement (score 2) while DUTERIMBERE IMF SA is in a strong
disagreement (score 1). This implies that MFIs level to attract many employees is low or at least

non - existing. That is the reason why management thinks it is not worthwhile accepting unsolicited applications.

Statement 8: You target candidates who are still at university/ fresh graduates

In both cases, employers agree that their target potential employees are fresh graduates as evidenced by score 4. This implies their low capacity to attract employees with many years of professional experience.

In both cases, MFIs strongly disagree with the fact that they employ people with experience in microfinance. When asked why, one manager at IMF UNGUKA SA had this to say «We do not require employees with previous experience. After all, there are none in the Rwandan labor market, expect those from the bankrupt microfinance institutions. We do not need such experiences since they did not help their former employers¹³».

This implies that MFIs do not have people with the specific skills and experience to contribute to their mission and vision. They hire people with some generic experience to be trained as they are doing their jobs. If there were some few people with these skills, MFIs would not be able to attract them since they would charge high salaries and benefits for their scarcity.

In IMF UNGUKA SA the statement is strongly agreed with (score 5) while in DUTERIMBERE IMF SA it is agreed with as evidenced by score 4. MFIs often use on - the job training rather than off - the job training since the latter are expensive. Some exceptions happen, however, when training is sponsored by partners.

Statement 11: You train outside your work premises / off - the - job training

In IMF UNGUKA SA, the statement is strongly disagreed with (score 1) while in DUTERIMBERE IMF SA it is disagreed with as evidenced by score 2. In any case, it implies that MFIs capacity to train off the job is very low. That explains why they train more on -the - job (Statement 10).

The issue of labor turnover was worth investigating. At IMF UNGUKA SA, management thinks it is not remarkable (score 2) while at DUTERIMBERE IMF SA management is indifferent as evidenced by score 3. However, as can be read from what employees feel, microfinance are likely to experience high rates of turnover after employees have had good professional experience.

IMF UNGUKA SA strongly agrees (score 5) while DUTERIMBERE strongly disagrees with the statement as evidenced by score 1. This means that though both companies are in microfinance and enjoy the same legal status, either their target customers are not necessarily the same or DUTERIMBERE IMF SA does not face competition in its areas of intervention because its clients need typical micro loans or these companies are not targeting the same customers because they are at different levels of growth.

Lack of enough capital was reported to be «one of reasons as to why MFIs may loose customers to commercial banks in some instances since they cannot satisfy the big amount of loans they require when they grow their businesses¹⁴

¹⁴ Interview with the Director of Operations and Banking Transactions at UNGUKA

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 4.3.2. Why employees resign from MFIs

STATEMENTS	IMF UNGUKA SA	DUTERIMBERE IMF SA
Statement 14	3	2
Statement 15	3	4
Statement 16	4	4

Statement 14: Microfinance is not a popular industry in Rwanda, so employees do not feel proud to be associated with it. At IMF UNGUKA SA, management is not sure about the truth in this statement as evidenced by score 3. At DUTERIMBERE IMF SA, management is rather in disagreement with the statement (score 2). This implies that the popularity of microfinance sector plays no role either in attracting or in retaining skillful employees. In fact, this is in agreement with what employees said that they did not apply for jobs in MFI as a consequence of having dreamt to have such jobs with current employers.

Statement 15: Microfinance salaries are not competitive. After employees have gained some banking experience they seek jobs with classic banks, where salaries are higher. In IMF UNGUKA SA, management is not sure again (score 5). However, DUTERIMBERE IMF SA' management is rather in agreement with the statement (4). This implies that among other factors employees attraction and retention depends on the MFIs' level of salaries and other benefits. Employees' reasons to resign may be that the level of pay does not meet the market standard or they feel their professional experience is not worth what they are earning.

Statement 16: The career path in microfinance is not clear or is not attractive. Employees seek employment with other organizations where career path looks clearer. In IMF UNGUKA SA, management is in agreement with the statement as evidenced by score 4. In the same line of understanding, DUTERIMBERE management is in agreement. This implies that clarity of the career path in microfinance is one of factors that play a role in retaining employees with professional experience. As a consequence employees who have gotten some professional experience would rather like to join employers with more challenging positions.

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 4.3.3. Strategic planning in MFIs

STATEMENTS	IMF UNGUKA SA	DUTERIMBERE IMF SA
Statement 17	4	4
Statement 18	5	3
Statement 19	5	2
Statement 20	5	4
Statement 21	5	4
Statement 22	5	4

Strategic planning is a practice in the microfinance sector. In fact, in both cases, there are business plans (2010 - 2014). What issues do their business plans address?

First of all, both companies agree that they address competition issues (Statement 17) as evidenced by score 4. In microfinance, two levels of competition may be addressed. For example, IMF UNGUKA SA believes that its competitors are not MFIs rather commercial banks. This is the reason why, their business plan reads «We want to increase our social capital and thus be an intermediary bank¹⁵».

This is not the same in DUTERIMBERE IMF SA, after all they reported not to loose customers to commercial banks. While both recognize the funding issue, they also are set to attract donors and investors.

Secondly, they address marketing issues (Statement 18) at different levels. IMF UNGUKA SA strongly agrees (score 5) while DUTERIMBERE IMF SA thinks it is just an issue (score 3). Why is it that UNGUKA wants to market seriously? One of reasons may be that IMF UNGUKA SA' s management reported «to be competing with commercial banks¹⁶». In DUTERIMBERE IMF SA,

however, they do not think it is a serious issue. After all management reported to be «loosing no customers to commercial banks¹⁷»

Thirdly, in the studied, it was revealed that business plans do not address the human resource issue at the same extent (Statement 19). IMF UNGUKA SA takes this with a serious note as evidenced by score 5 while at DUTERIMBERE IMF SA they do not think it is an issue as evidenced by score 2. This again may explain what their «human capital mindset is» and who their competitors are.

Fourthly, strategic plans address funding issues (Statement 20). IMF UNGUKA SA, with a target to be an intermediary bank seems to be in a more acute need as evidenced by score 5. However, DUTERIMBERE IMF SA agrees to be in need of funding too (score 4). This implies that microfinance institutions are in need for more funding. This means that their way of doing business today and their human capital management in particular is affected by availability of enough funds.

Fifthly, their strategic plans address shareholders attracting issues (Statement 21). UNGUKA, with a target to be an intermediary bank seems to be in a more acute need of more shareholders (score 5) while DUTERIMBERE IMF SA agrees to be in need of shareholders too (score 4). This implies that microfinance institutions are in need for more shareholders to respond to their funding needs.

Sixthly, their strategic plans address donor attracting issues (Statement 22). Like in Statement 21, UNGUKA is needier than DUTERIMBERE. The difference in the seriousness of their needs has a link with their different strategic goals.

4.4. EXISTENCE OF EXTERNAL FACTORS

External factors affecting any organization may be summarized as political, economic, legal / regulatory and technological. For the case of microfinance in Rwanda, the following are external forces influencing their performance.

The government of Rwanda shows a good political will to support microfinance institutions. This responsibility is entrusted with the National Bank of Rwanda. Above all, the Microfinance policy is in place to guide institutions in this sector.

Worthy of note is that according to Rwanda Revenue Authority, «companies that carry out micro finance activities approved by competent authorities pay corporate income tax at the rate of zero percent (0%) for a period of five (5) years from the time of the approval of the activity» ( http://www.rra.gov.rw/rra_article280.html).

However, when it comes to MFIs human resources management, the central bank has little influence. The job of the central bank is twofold:

First of all, «It is possible to see people who have been managers of financial institutions before and were involved in the office misuse. When they come to apply for a job in MFIs, MFIs do not know, only NBR knows. Candidates undergo a placement series of tests and then the employing institution sends a list of candidates to NBR to seek the opinion. Briefly, the job of the NBR is only to check with their past integrity where possible¹⁸»;

Secondly, «In case the MFI is recruiting the Director, the job is to see whether a candidate's academic background matches the job requirements. For example, they will show objection if there is an educationalist warming up for the MD's job¹⁹».

Interestingly, the NBR, in a bid not to «destroy» MFIs, «cannot hire an employee with a running contract from a microfinance institution²⁰».

The microfinance sector in Rwanda faces challenges to do with recruiting of skillful employees. The nature of the job in this sector is tough. According to one manager interviewed «managing a micro finance more challenging than managing a commercial bank. The job in MFIs is tougher than in commercial banks. Unfortunately, MFIs' pay is not competitive, that is the reason why majority of recruits are fresh graduates who are seriously looking for their first job²¹».

In the same line of argument, «a teller in MFIs suffers like a teller in a commercial bank. Their job involves paying customers, and receiving clients' deposits. May be with a difference in

18 Interview with officer in charge of microfinance supervision, National Bank of Rwanda

volumes of money and numbers of clients but sitting waiting for a customer is more painful than being busy»²².

In other words, in the labor market, MFIs compete with commercial banks most especially when they are new and need people with some banking experience. MFI employees are an easy target after all employees feel motivated even when salaries are not good as compared with other commercial banks yet superior to microfinance rates.

Ergonomics are not very good. «We have poor infrastructure. Facilities are not the best, offices, ventilation, chairs, computers are fairly available²³».

MFIs depend on donors / partners for training. Reported partners in this endeavor include CGAP, AQUADEV, TROCAIRE, TERAFINA and AMIR. This means «their capacity to develop their employees largely depends on outsiders, which carries a lot of uncertainties. Worthy of note is that there are no enough certified trainers of trainers in microfinance sector. When training is to take place, AMIR has to arrange with CGAP. Drawing from experience, however, many MFIs do not take it as a matter of priority to send employees for these AMIR - CGAP organized training. Their perception is that training is costly in terms of how much money they have to pay²⁴».

4.5. SUMMARY OF FINDINGS AND DISCUSSION

MFIs are still growing. While it was found that they barely headhunt, they often target fresh graduates but often hire senior six leavers, whom they will train on - on the job or train off the - job when there is support from partners who include CGAP, AQUADEV, TROCAIRE, TERAFINA and AMIR.

Though there is teamwork and quality of supervision, MFIs have challenges realistically measuring performance. This leads to poor management of promotions, though in some cases, employers put in place internal mobility of the staff, which yielded positive results.

They also have ambitious business plans. However, they are influenced by external factors which include government and competition in the labor market.

5.1. INTRODUCTION

This study problem statement was based on the concern that the microfinance sector in Rwanda has many promises to help the poor access financial services, yet MFIs have recently known erosion of customer trust because of lack of professionalism and enough human capital base. The research objective was to investigate the capacity of MFIs to attract and retain skillful employees.

To achieve this research objective, various methods were used. These include primary data and secondary data. Secondary data were collected from textbooks, articles, reports and policy documents. Primary data were collected from MFI Managing Directors, Human Resource Managers, the focus group interviewed and employees. Out of 96 licensed MFIs in Rwanda, out of which 83 cooperatives (COOPEC), 2 private liability companies (SARL) and 11 public liability companies (SA), 2 MFIs of the SA type were studied, 20 were interviewed.

After analyzing the data gathered using various tools above, the research came up with the following findings:

MFIs operators suffer from shortage of funds. This is responsible of poor work environment, lack of facilities, poor training management, poor ventilation; poor chairs etc among other consequences, a considerable number of employees would like to seek other employment opportunities as soon as they have opportunities. The sector's popularity and level of pay play a lesser role in retaining employees unlike lack of clarity in the career path.

The major research objective was to investigate the human capital management challenges and prospects of Rwandan MFIs. In line with that specific objectives were to study the MFIs' capacity to attract skillful employees; to analyze the MFIs' capacity to retain skillful employees and finally to investigate whether there are external factors that influence MFIs' capacity to attract and retain skillful employees. Using the following questions, one may know whether research objectives have been met:

Can MFIs attract skillful employees? MFIs have less capacity to attract skillful employees. They often attract fresh graduates with no experience whatsoever.

Can MFIs retain skillful employees? Their low capital base makes it that they are not good at providing to the employees expectation. Among other things, they cannot train seriously, their paycheck is weak, their career path is not clear. However, MFIs where many employees are shareholders tend to make a difference.

Are there external factors that influence MFIs' capacity to attract and retain skillful employees? There are different forces. Major ones are lack of local resource people in microfinance and tough competition in the labor market where competitors are stronger.

Having answered to the above questions, then the research objectives have been addressed.

5.3. RECOMMENDATIONS

Drawing from the above conclusions, recommendations can be made to various stakeholders in the microfinance sector:

Majority of the DUTERIMBERE IMF SA' employees are ready to leave as soon as they have new opportunities. This is an indication of how they perceive what is done for them by management. The following are recommendations that can be tried:

First of all, it should encourage internal human resource mobility; this motivates employees, boasts their commitment and cuts down boredom. Employees should be used to switching from post to post so that they can have exposure to many aspects of their institution;

Secondly, it should encourage employees to be shareholders. Basing on the fact that among all the interviewed employees none was a shareholder and this works elsewhere, it can be tried to buy more ownership from employees. Besides, this will increase the capital base.

Thirdly, it should work on supervision. Majority of employees being unhappy with supervision means that they need feedback and coaching on their day to day activities. This gives them an opportunity to learn more as they increase their confidence.

Fourthly, though management claims that there are many training sessions, employees are not satisfied. Working on a regular program can improve their morale. Training using knowledgeable shareholders could help;

Fifthly, there should be a clear and consistent performance appraisal mechanism with employees' involvement in the whole process. This is an ample opportunity to tell people what they do well and what they do the wrong way. It gives more meaning to people's motivation and careers.

Sixthly, as microfinance institutions are not good at motivating employees using the paycheck, DUTERIMBERE should take other non financial motivators and maximize them where it can;

Lastly, in their recruitment endeavors, there should be English speaking candidates to take up some senior positions. This is because Rwanda has gone East Africa, yet the way of doing business at DUTERIMBERE IMF SA is «French».

Human capital management in Rwanda: Challenges and prospects for Microfinance Institutions 5.3.2. Recommendations to IMF UNGUKA SA

While IMF UNGUKA SA is doing well in many regards including internal human resource mobility, there are areas where recommendations suggest changes:

First of all, there should be a clear human resource management policy. This will make clear many aspects of human resource management including career path, performance appraisal. Management should not decide out of judgment. Before being positioned as an Intermediary Bank, the human resource management practices, among other things should be well streamlined. If they are not satisfactory today, it will be worse after change of status.

Secondly, intensive training sessions take places using knowledgeable shareholders, which is good. However, such intensive training can only serve short term objectives. Management should think long term training goals.

Thirdly, there should be a clear and consistent performance appraisal mechanism with employees' involvement in the whole process. This is an ample opportunity to tell people what they do well and what they do the wrong way. It gives more meaning to people's motivation and careers.

Fourthly, in their recruitment endeavors, there should be English speaking candidates to take up some senior positions. This is because Rwanda has gone East Africa, yet the way of doing business at DUTERIMBERE IMF SA is «French».

Fifthly, in their efforts to look for experienced equity investors, management should think about changing from the French to English culture through welcoming in the right partners.

Sixthly, as UNGUKA is moving to the Intermediary Bank, it should check on the paycheck of its employees in line with what competitors are doing.

The microfinance sector is an attractive business area in Rwanda. However, prospective investors should think about investing a considerable amount of money so that they do not suffer the fate of lack of care of human resources.

5.3.4. The GoR and public / private institutions

There is acute shortage of microfinance resource people in Rwanda. This carries opportunities to training institutions. Higher learning institutions can take this opportunity by organizing affordable professional and academic programs to serve the market demand.

5.4. FUTURE RESEARCH

This research cannot claim to be as exhaustive as many readers may expect it to be. This was due resources constraints. In the future, some closely related studies can be conducted. The following are some of them:

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Appendix 2: Questionnaire to MFI Managing Directors Appendix 3: Interview Guide meant for the focus group Appendix 4: Interview guide with the Human Resource Managers Appendix 5: List of licensed MFIs as of September 15^th, 2009