Global insights on wage and employee turnover in microfinance

Microfinance institutions (MFIs) face high operating costs partially due to employee turnover while striving to balance financial sustainability with their social mission. This study examines the relationship between wages and employee turnover, using data from 979 MFIs in 95 developing countries from 2010 to 2018. Utilizing two instrumental variables for wage and various estimation techniques, we find a nuanced relationship: higher wages initially reduce employee turnover and enhance employment stability. Beyond a certain threshold, increased wages lead to higher turnover and instability. Additionally, employee turnover is lower for non-profit MFIs, while MFIs in wealthier economies experience higher turnover. • We test the impact of wages on employee turnover in microfinance. • We use two instrumental variables. • The results show that wages reduce employee turnover. • However, increased wages after a certain level can increase employee turnover.