Impact of Employee Retention on Organization Profitability

Abstract

Investment Encyclopedia defines ‘Micro Finance’ as ‘a type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. The goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance. According to World Bank’s reports there are approximately 500 million people round the globe getting benefited from the microfinance- related operations. The emergence of microfinance practitioner nullified the concept that poor are non bankable. There is a paradigm shift in microfinance to make it a profitable undertaking to attract external funding through private investment. This seems to be a compromise of the very mission of fighting poverty by reaching and serving the ‘poorest of the poor’ with the objective of maximizing profits. There are two current imperatives within the microfinance sector “increasing outreach” and improving sustainability”. There is a creative tension between these two imperatives. If increasing outreaches is taken to mean more clients then outreach and sustainability are effectively synonymous terms. Increasing client outreach provides economies of scale that in turn makes the Microfinance Performance more efficient and therefore more financial sustainable. On the other hand, if increasing outreach is taken to mean targeting hard-to-reach clients such as people living in remote areas, then outreach and sustainability are effectively competing terms. Reaching clients in remote areas is relatively expensive, which makes the Microfinance institutions less efficient and therefore less sustainable. In the idiom of the microfinance industry, program sustainability has come to be more or less synonymous with financial self-sufficiency. Financial self sufficiency is the nonprofit equivalent of profitability. In microfinance, it is defined as when an microfinance institution’s (MFI’s) inflation-adjusted operating revenues, less monetary and in-kind subsidies, exceed its inflation-adjusted operating costs plus its actual and imputed (the rate the MFI would have paid in the market) funding costs. The outreach and the financial sustainability are both mostly the goal and objective of microfinance banks for micro finance bank financial sustainability and as well as outreach to clients is very necessary for long term sustainability. Can banks get financial sustainability and outreach simultaneously is the research problem is this possible or there is trade off between the outreach and financial sustainability of microfinance banks. Issues of reaching the poor and ensuring sustainability are among areas of ongoing debate in the microfinance field. The contestation is on looking at outreach and sustainability in isolation and a matter of priority between the two. Still it is a great challenge to build MFIs that reach the poor and simultaneously achieve sustainability (Otero, 1999). As to Morduch (1999:1571) “the greatest promise of microfinance is so far unmet, and the boldest claims do not withstand close scrutiny”. Currently, building sustainability is given more focus than outreach. However, both are the twin targets of microfinance if to impact on poverty alleviation.