Background of the Study Micro Finance Institutions

Background of the Study
Micro Finance Institutions (MFIs) are considered a major source of finance for the poor in the fight against poverty in many countries. Microfinance refers to the process of providing loans, insurance, savings, money transfers among other banking services to the poor living in rural and urban areas. The institutions accept deposits on a day –to-day basis, give small amounts of money which are on short-term basis to low income households and often use collateral substitutes
Reward systems according to Sziligyi (2003) are outcomes or events in the organization that satisfy work related needs. Rewards systems are much more than just bonus plans and stock options but while they often include intrinsic incentives, they also include extrinsic types like promotions, non- monetary bonuses, vacation holidays or simple “thank you” from a manager. Since productivity is a result of high morale, it is however imperative on managers to reward employees when they hit organizational targets and stretched standards set by the organization. A properly administered system of rewards has the capacity not only to improve incentives for quality workmanship and staff performance but also strategically attract skilled employees to join the organization whereas the reverse may lead to unproductive performance and even to a high incidence of staff turnover.With regards to the various steps of performance appraisal under rewards systems, it is evident that employees and supervisors would come into terms with goals and policy framework of the organization and develop personalized non-salaried based rewards that correlate with the specific objectives (Wilson, 2004).
Motivation according to Luthans (2003), is the management process influencing behavior of knowledge on what make people think. It contributes to the process of stimulating people to act and achieve specific goals. As motivation concern, reward system is an important tool for management use as the channel of employees’ motivation. Currently, the reward programs are implementing either in public or private sectors. It was clearly stated that employees’ effort is increased when rewards are offered (Vroom, 1964). In a reward program, large amount of money are spent. The reason behind these, hopefully it will increase employees’ motivation. As pointed by Cameron and Pierce (2006), an effective reward system requires an experimental attitude; continual fine-tuning of the system; input from people within the system and ongoing evaluation of the effectiveness of the system. Danish and Usman (2010) suggested that effective reward system leads to increased satisfaction for employees; recognition of accomplishments; a desire to attain high standards; a means to achieve personal and social goals; high productivity and feeling of competence and freedom.
When employees are rewarded, they get work done. Employers get more of the behaviour they reward, not what they assume they will automatically get from employees. Effective reward systems should always focus on the positive reinforcement. Positive reinforcement encourages the desired behaviour in organizations. This encourages employees to take positive actions leading to rewards. Reward programs should be properly designed in the organization so as to reinforce positive behaviour which leads to performance (Torrington ; Hall, 2006).
Even with the best strategy in place and appropriate organizational architecture, an organization will be effective only if it members are motivated to perform at a high level. The types of motivation are intrinsic and extrinsic. “Intrinsic motivation is a psychological force that determines the direction of a person’s behaviour as a result of challenging or interesting work, giving autonomy to work, designed scope to develop skills, abilities, opportunity to develop and grow, etc. Extrinsic is also psychological force that determines behavioural change as a result of tangible and intangible benefit such as salary, fringe benefit and special awards” (Gareth ; Jennifer, 2003)
Reward systems are very crucial for an organization (Maund, 2001). Rewards include systems, programs and practices that influence the actions of people. The purpose of reward systems is to provide a systematic way to deliver positive consequences. Fundamental purpose is to provide positive consequences for contributions to desired performance. Reward systems are the mechanisms that make this happen. They can include awards and other forms of recognition, promotions, reassignments, non-monetary bonuses like vacations or a simple thank you.
It is a fact that success in every organization depends on the quality of its human resources both skilled and unskilled labour which is perhaps the most intangible aspect of the organization, hence the most important. All these things plants, machinery and financing cannot generate income without manpower. Studies have shown that in today’s competitive business environment, success is increasingly a function of effective human resources management (Ahindo, 2008). It is therefore necessary to have a workforce that is motivated to yield high performance and productivity towards achieving the organizational goals and objectives.
Irrespective of the industry within which an organization operates, the concept of motivation cannot be looked down upon. With this regard banking being a service industry and therefore having direct contact with customers, the presence or absence of employees’ motivation can have immediate telling effect on the customer thus either delighting the customer or otherwise) which eventually results in customer retention and profitability. The critical workforce management challenges of the immediate future driven by corporate re-engineering and restructuring efforts, loyalty concerns and fierce competition for key talents are closely linked to the emerging issues of employees’ commitment and productivity (Bandura 2000).
Motivation approaches definitely satisfy the needs of the employees and in return, the employee repays it through their hard work. Identifying the needs and answering it is the most basic approach of every organization to earn the commitment of the employees (Chughtai, 2008). With a well-motivated workforce, an employee’s performance can be manifested on the organizational effectiveness, which allows the individuals to focus on the development of their work, in terms of behaviour, skills and knowledge, ethics and effectiveness. It has been noted that motivation tends to energize the workforce which can result in their expected job performance.
Generally, the reward system is accompanied by several actions both from the viewpoint of the corporation and the individual. It is led to tensions for the corporation. First under similar conditions people intend to refer to the corporations which provide the highest rewards. Thus corporations can attract employees who have competency and qualification by offering rewards. Second, the reward that is given to employees in lieu of service compensation is a tool for receiving feedback from previous performance and third, rewards can be used as a motivational tool to improve future performance. Hence, it seems that the reward system should be effective and efficient so that such actions are realized in the corporation and this system should be designed in a way that creates maximum return both for the corporation and the individual (Karami, 2003). Paying attention to the principal needs of the individual and enjoying fair reward distribution inside and outside of the corporation are among the major principles in any reward system (Otieno, 2006). The reward system is one of the basic scopes of human resource management performance and service compensation management as one of the scopes of this task undertakes to design and execute employees’ wage and benefits systems.

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