Employee turnover and the credit risk of microfinance institutions (MFIs): International evidence

Abstract

In today's competitive world, credit risk poses a significant challenge to lending institutions such as microfinance institutions (MFIs) due to its impact on their long-term institutional and financial viability. In recent years, high employee turnover has also emerged as a threat to the sustainability of MFIs. Therefore, this study investigates the impact of employee turnover on the credit risk of MFIs using nine years of unbalanced panel data (from 2010 to 2018) of 1266 unique MFIs from 101 countries, obtained from the World Bank databases. In general, we observe that employee turnover raises the credit risk of MFIs. The result is robust to endogeneity-correction techniques (e.g., Hausman-Taylor) and other alternative specification/robustness tests. The findings offer valuable insight for MFI managers, enabling them to make informed decisions about employee turnover management to mitigate credit risks.

Keywords

• G21
• G23
• J63