Employment in the microfinance industry is at a crossroads. When microfinance began, its scope was simple: Charitable, donor-driven organizations with a mission to eliminate poverty gave out very small business loans to help the world’s poor. Big banks — deeming the double- and triple-digit loans too small to be profitable – didn’t get involved.

Today, after three decades of rapid growth, the microfinance industry has become both more crowded and more complex. The Microfinance Information eXchange reports 1,200 microfinance institutions (MFIs) with 64 million borrowers and 33.5 million savers, and those numbers are growing at 25% a year. Big banks, realizing there is money to be made at the bottom of the pyramid, are now entering microfinance markets that were once solely the territory of philanthropies. Commercial investors, too, are seeing profits. And microfinance institutions are scrambling not to lose ground.

“I feel like we’re seeing a lot of polarization as this industry grows up,” said Elizabeth Lynch, manager of the Center for Microfinance Leadership at Women’s World Banking. “Now it’s the NGO [non-governmental organization] versus the bank, the social investor versus the commercial investor. Microfinance encompasses so much that there naturally seems to be a tug of war.”

The tug of war is most recently playing out in microfinance’s human resources departments. As a greater number of for-profit microfinance institutions enter the market, more established MFIs worry that banks are poaching their best employees. At the same time, traditional MFIs need to attract banking talent at the managerial level to tackle the more sophisticated financial services they must offer to survive.

“Field officers are probably the most valued commodity in microfinance,” Lynch noted. “So if banks are looking to go into retail microfinance, there is the issue of banks poaching loan officers and branch managers because they bring the on-the-ground expertise that these banks desperately need.” The flow goes in the other direction at the managerial level when microfinance institutions seek to expand their portfolio of services, Lynch added. “A lot of activities such as treasury management, risk management, financial management — they wouldn’t have necessarily had these skills in-house as an NGO.”

Industry veterans worry that the new influx of banking talent and the increasing focus on banking services could jeopardize microfinance’s original mission to help the poor.

“It’s causing tension in the field,” stated Monica McGrath, assistant adjunct professor at Wharton’s Aresty Institute of Executive Education, who recently wrote a needs assessment for the microfinance industry with colleague Dana Kaminstein. In many countries, microfinance institutions are transitioning from their status as non-governmental organizations to regulated financial institutions in order to make their business model more sustainable, she added. By becoming regulated, an MFI can take deposits, reducing its dependence on donations and increasing its access to capital. “The talent and succession issue is important because as these institutions offer new services, they have to increase the level of professionalism in their organizations. There is a very strong case to be made that if we over-commercialize, we’re going to be serving the wrong people or emphasizing the wrong result.”

The talent discussion heated up recently at Aresty Institute of Executive Education, where about two dozen microfinance leaders from around the world gathered for the Women’s World Banking Advanced Leadership Workshop. Some participants lamented the loss of well-groomed talent to big banks, while others maintained that the microfinance industry would continue to attract talent because it offered benefits that banks cannot. A number of participants told stories of leaving banks to work at microfinance institutions, while others talked about moving in the opposite direction.

The program was offered by the Center for Microfinance Leadership, which Women’s World Banking launched last year in part as a response to the 2008 “Microfinance Banana Skins Report.” The annual survey of the microfinance industry found that management quality topped the list of concerns among microfinance institutions. “Many recognized the need to develop leadership and management capacity in the industry,” Lynch said. Studies show that only about one-fifth of the developing world population has access to formal financial services, and the need continues to grow. “There is such an enormous potential market for these financial services, and the concern was that the institutions are growing so rapidly that the development of this talent is not taking place.”

Increasing managerial skills and talent in the microfinance industry has become even more important in the global economic recession. The most recent 2009 Banana Skins report, written by David Lascelles and Sam Mendelson at The Centre for the Study of Financial Innovation, found that management quality fell to No. 4 as more financial worries, such as credit risk and liquidity, moved up. “The emergence of credit risk as the top [concern] in this survey is the clearest indicator of the dramatic new challenges that face the microfinance industry in these turbulent times,” the report read. “In the past, credit risk (the risk of loss when loans are not repaid) was seen as a minor problem in a business whose typical customers had an excellent repayment record. (In our 2008 survey it was ranked No. 10.) But not any more. A combination of stressful economic conditions and structural change within the microfinance industry has greatly increased concern about default and loan loss.”

Such economic turmoil has brought the need for financial know-how into even sharper focus. “The big question, though, is whether MFI managements are up to leading their institutions through these testing times,” the report continued. “Respondents saw a need for more skills in the areas of risk management, cost control and strategy as MFIs face tougher competition and difficult market conditions.”

A Double Whammy

In the end, it boils down to survival. Microfinance institutions risk losing customers unless they provide a wider range of services — such as convenient banking through ATMs, branches and other outlets, said Maria Angelica Hoyos, marketing manager for Women’s World Banking Colombia. “We need a full portfolio – not just loans. As a bank, we can have a higher level of clients.”

Growing more sophisticated allows MFIs to keep serving customers who have become successful in business and now have financial needs beyond the micro-loan. For example, some microfinance institutions are branching into housing loans and other types of credit. Others are looking into crop and health insurance. Many microfinance institutions also see savings accounts as a vital component of the services they must offer. The expanded portfolio is not just good for the clients: By offering more banking services, the MFI also brings in more capital, creating a more sustainable operation that feeds into the growth of the MFI and makes it better able to pursue its mission.

Despite the perks, bankers and microfinance institutions make strange bedfellows. Annet Nakawunde, head of operations at Uganda Finance Trust, Ltd. in Kampala, Uganda, can see the need to provide more banking services, but she chafes at the flow of labor away from microfinance institutions. “We have a challenge in that the big banks are downscaling, but they don’t have the capacity to take care of the microfinance customer, so they are looking to the micro-finance institutions to find their employees,” said Nakawunde, who has watched several employees leave to go to financial institutions. “The microfinance industry has turned out to be a training ground for the big banks. We take the … people and train them, and then the banks come and poach the talent.” The exodus becomes a double-whammy for the microfinance institution, because MFI customers often follow the employee to the new bank. “When you lose that talent, you also lose customers, because [the bank employees] also have targets.”

On the managerial level, attracting banking talent to the microfinance sector is a challenge in part because of pay and benefits that are comparatively low. “I’m not sure that we’re in a position to poach top executives from banks,” said Karim Fanous, executive director of The Lead Foundation in Egypt. “We will be unable to compete on attractive salaries and financial remuneration. But we have a lot of other things to offer. We need to make sure people know that these things are there.”

Lynch agrees that microfinance “can’t compete in terms of salaries” but believes that microfinance’s social mission and “double bottom line” is “a significant draw for those who are susceptible.” Women’s World Banking frequently gets calls from women on Wall Street who want to use their skills for a social purpose. “Microfinance offers something to people in financial services who want to contribute to the greater good,” she says.

Career development also draws some people to banks from microfinance, pointed out Maros Parreno Apostol, who works as general manager of South Pacific Business Development (SPBD) in Samoa. Before moving to Samoa, she was based in Cambodia for nine years with two other microfinance institutions. In both Samoa and Cambodia, “MFI staff transfer to banks because of the organizational nature of the MFI,” she said. “MFIs have a flat organizational set-up compared to banks,” where there are different functions and specializations. “We can train people, manage their talent and send them to international conferences. However, the job level/function is the same.”

David Mukaru pointed out that career advancement was one reason he moved from a non-profit microfinance institution to Equity Bank, a for-profit microfinance institution in Kenya. He also saw a greater opportunity to offer a broader range of services to the people he wanted to help. “Why did I move? Probably I needed to scale up, to get wider and deeper into the market. Sometimes officers need to grow their skills” in order to better help their constituents, he said.

When banking executives do decide to go into microfinance, it’s not always easy to find a good fit. Glynis Rankin, a workforce consultant at London-based Creative Metier, said a recent study she did of 15 microfinance CEOs found that the institutions struggled to integrate banking talent into their culture. “Sometimes people would come into microfinance from banks and try to make it work like a bank,” she said. This caused problems in an industry that is highly mission-driven. The concern she often heard from CEOs was, “‘How do you re-orient people to understand that this is microfinance, that this is something very different?’ I think there’s a real issue there.”

Faisal Malik, head of information technology at the Kashf Foundation in Pakistan, said that, when recruiting banking executives, he always asks, “Do you have an ability to unlearn? That’s a very important aspect.” Banking executives might have talent, but there is a lot more to microfinance, he added. “It’s a whole different level of gratification when you see something grow; when you’re able to touch the grass roots-level poverty and see how you’re having an influence. In the end, life is a lot more than just benefits and compensation.”

Some employees who leave microfinance institutions do come back, according to Erdenechimeg Dorjgotov, director of the operations management division of XacBank, part of the Tenger Financial Group, in Ulaanbaatar, Mongolia. In her experience, about 40% of employees who leave her MFI for a traditional bank return after a few years. “They miss the culture,” she said.

Those non-tangible benefits are what drew Lorisa Canillas away from a bank to become general manager of South Pacific Business Development in Nuku’alofa, Tonga. “The trigger for me to shift to microfinance was not monetary gain or career growth,” Canillas said. “I was looking for meaning from my work and I just could not get it from the corporate and commercial banking world. I thought that if I am going to work so hard, I might as well do it [for] those who are disadvantaged.”

The advantage of transitioning from being a banker to becoming a microfinance practitioner “is that you can bring a strong business approach to your program, which helps ensure sustainability rather than just being benevolent,” Canillas noted, adding that “there are aspects in microfinance work that you cannot apply your banker’s mindset to. For example, you cannot expect to do thorough financial analysis on loans as low as $100 for clients who do not even have records of their income and expenses; or lend to start-up micro-businesses, which is unthinkable in the banking world. More importantly, having the commitment — or sharing the same values and mission of helping the poor — is a very important factor for a talent to be effective. MFIs must guard against the flow of talent that has no passion for the double bottom line.”