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

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.

1. 10. STRUCTURE OF THE STUDY

This research is divided under major chapters as follows:

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.

CHAPTER TWO: LITERATURE REVIEW 2.1. INTRODUCTION

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

the need to position human capital as a base for defining and creating strategy. ( www.zivkaprzulj.com/.../0/.../Challenging_Human_Capital_Measurement.doc)

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?

Source: Google images

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 is also argued that the theory takes roots in the work of the combined efforts of Sir William Petty (1623 - 1987), Adam Smith (1723-1790) and Theodore Schultz (1902 - 1998) ( http://www.economyprofessor.com/economictheories/human-capital-theory.php).

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).