Human resource practices and performance in microfinance organizations: Do intellectual capital components matter?

Abstract

This study examines the influence of human resource practices (HRPs) on both the financial and social performance of monetary financial institutions (MFIs), assessing the role of intellectual capital (IC). Data were collected from 252 MFIs in India, and structural equation modelling was used to analyse causal relationships. The proposed model finds a positive relationship between HRPs and human, structural, and relational capital, and all facets of IC were positively associated with financial and social performance. Intellectual capital fully mediated the relationship between HRPs and financial performance but only partially mediated the relationship with social performance. Accounting for IC components, the indirect relationship between HRPs and financial performance was stronger than the indirect relationship between HRPs and social performance. Results indicate that HRPs can better explain the performance of MFIs through human, relational, and structural capital accumulation. They were congruent with a resource‐based view of HRM and human capital theory.