Human Resource Capabilities and Business Performance of Microfinance Institutions (MFIs)

Abstract

Background and Aims: MFI growth depends on human resource capabilities, which are characterized by knowledge, skills, attitudes, and values. This study investigates the financial sustainability challenges and high employee turnover negatively impacting the performance of microfinance institutions (MFIs). It focuses on the relationship between human resource capabilities and business performance in these institutions. Study Design: This study used a descriptive-correlational research design. The descriptive approach assessed human resource capabilities in terms of skilled personnel, innovation, and training and development, as well as business performance based on financial and learning and growth perspectives of microfinance institutions. The correlational approach examined the relationship between human resource capabilities and business performance and determined whether human resource capabilities and business profiles predict business performance. Place and Duration of Study: The study was conducted in Bacolod City, Philippines from January 2025 – March 2025. Methodology: The study utilized both adapted and researcher-made questionnaires to gather data from 73 MFI managers selected through systematic random sampling. Statistical analyses included frequency, mean, standard deviation, ANOVA, T-test, Mann-Whitney U test, Kruskal- Wallis test, Pearson Correlation, Simple Linear regression and Multiple linear regression. Results: Findings revealed well-established human resource capabilities across all indicators. However, MFIs showed gaps in aligning employees’ job responsibilities and providing sufficient training. MFIs demonstrated strong financial performance in revenue generation, although costs remained high, largely due to expenditures on skilled personnel. In the learning and growth perspective, information sharing among employees was rated highly. No significant differences in human resource capabilities or business performance emerged when MFIs were grouped by profile variables. Results indicated a positive relationship, with human resource capabilities predicting business performance, unlike profile characteristics. Conclusion: In conclusion, although MFIs demonstrate strong human resource capabilities, inconsistent application and deficiencies in specific areas, such as job-role alignment and training, hinder optimal business performance. These findings underscore the importance of strengthening human resource capabilities to enhance overall organizational outcomes.