How Costly is Employee Turnover in Microfinance Institutions? A Non-linear Evidence

The impact of employee turnover on firm performance is well established in the human resource literature. However, the extent to which employee turnover affects the administrative costs of microfinance institutions (MFIs) has not yet been thoroughly investigated. This investigation is critical because microfinance is often characterized as a ‘high-touch, low-tech’ sector, heavily reliant on staff for client service. This study utilized data from 1,122 unique MFIs in 107 countries over nearly a decade (2010–2018). The data were analyzed using a random-effects model and a two-step system generalized method of moments to ensure the robustness of the findings. Our findings reveal an inverted U-shaped relationship. Specifically, employee turnover initially increases MFI administrative costs, but these costs begin to decline after reaching a peak. Moreover, changes in staff productivity explain this non-linear relationship. JEL Classifications: G21, J63, N20, O15