NBFC-MFIs (non-banking finance companies–micro finance institutions) are sailing in the same boat as private sector banks and small finance banks when it comes to high employee turnover.

This is underscored by the fact that Sa-Dhan, which is the Self-Regulatory Organisation (SRO) for Microfinance Institutions (MFIs), has flagged staff attrition and retention as significant issues across all states, with attrition in some cases being more than 50 per cent.

Initiated study

The SRO attributed this to the increased aspirations of the field-level staff, opportunities available within and outside the industry, the nature of work involved in microfinance, among others. It has initiated a study to understand the exact reasons.

NBFC-MFIs provide collateral free small ticket loans to economically disadvantaged groups.

The latest Financial Stability Report noted that employee attrition rates are high across select private sector banks (PVBs) and small finance banks (SFBs).

The total number of employees of PVBs surpassed that of public sector banks (PSBs) during 2023-24, but their attrition has increased sharply over the last three years, with average attrition rate of around 25 per cent, per the report, which is a half-yearly publication with contributions from all financial sector regulators.

The FSR said high attrition and employee turnover rate pose significant operational risks, including disruption in customer services, besides leading to loss of institutional knowledge and increased recruitment costs.

Reduced opportunities

Sadaf Sayeed, Co-Chair, Sa-Dhan and CEO, Muthoot Microfin, said: “Youngsters don’t look at getting into a company and being there till their retirement. If they get better opportunities, they move on. So, attrition rates are high.

“However, in recent months the attrition rates have come down. This may be because of the slowdown in lending and all that. So the opportunities have reduced and attrition has come down. But attrition rates are anywhere between the range of 35 per cent to 50 per cent and even more.”

As of September-end 2024, NBFC-MFIs’ outstanding loans & advances portfolio declined to ₹1,36,586 crore against ₹1,41,587 crore as of March-end 2024, per RBI data.

25% quit sans another job

Referring to a study Sa-Dhan conducted in this regard, Sayeed highlighted an interesting discovery—25 per cent of the employees quit their job without having another one in hand.  

“And that was something we never imagined. Usually, a person who has got into a formal employment will look at some alternative and then only leave. But they are choosing to leave the job and stay at home.

“This is a phenomenon which is striking for us. And 25% is not a small numberSo, that’s a challenge,” he said.

The Sa-Dhan Co-Chair, in his remarks at a recent MFI conference, observed that to overcome the attrition challenge there are methods, including ensuring MFIs do proper verification before employing people.

“Sa-Dhan is working on that….employee verification is a mandatory thing and reporting to the Employment Bureau is also very important. Those things are being taken care of,” Sayeed said.

The FSR noted that the microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes. Importantly, among borrowers who had availed loans from multiple lenders and those with higher credit exposure, impairment remained high.