Measuring Market Rate Investment:
A first step in Social Return for Microfinance
Drew Tulchin
Social Enterprise Associates
Social Return on Investment (SROI) Panel
SEEP Network Annual Conference
Oct, 2003
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SROI Panel:
Measuring Market Rate Investment
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Introduction
Definition, Value & Goals of Social Return
Frameworks
Measuring Investment
Market Investment Measurement
Examples
– General
– Specific: Prisma Microfinance
• Q&A
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Introduction
Who are you? What brought you here today?
Who am I?
Drew Tulchin,
Social Enterprise
Associates
A network of professionals
making communities better by
applying business skills &
sustainable practices.
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Definitions of Social Return
More than one definition?
Different emphasis directs our thinking
Varied audiences suggests variety of solutions
• Internal Economic Value generated
– (s)ROI
• Documented social value created
– SroI
• External Economic Value created
– i.e. return provided to society
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Challenges of Social Return
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Not well understood
Hard to measure important elements
Few tools exist
No industry standard
Takes lots of time
Need to create proxies
No critical mass, low cost/benefit
Why bother?
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Value of Social Return
Broadly (more obvious) What is its function?
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Marketing / PR
Enhance impact measurements
Tie to Socially Responsible Investment (SRI)
Mobilize new investment/sources of cash into microfinance
Specifically (less obvious) Who is the social return for?
• Use by managers in decision-making
• Segment SRI interested investors. Craft tailored messages
to each, using social return for some
• Consider social benefits from financial inputs (investment)
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Goals for Social Return
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Develop an industry metric & apply it uniformly
Establish comparables (apples to apples)
Aggregate Data (industry totals, vs. other sectors)
INTERNAL audience:
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Easy to use, add value to operations
EXTERNAL audience:
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Easy to understand, add meaning to investment
decision &/or evaluation
SROI operating on two fronts:
1)
2)
Undertake R&D to create social science valid standard
Use existing available data for best use
SEEP - 10/03
Goals for Social Return
•
•
•
•
Develop an industry metric & apply it uniformly
Establish comparables (apples to apples)
Aggregate Data (industry totals, vs. other sectors)
INTERNAL audience:
–
•
Easy to use, add value to operations
EXTERNAL audience:
–
Easy to understand, add meaning to investment
decision &/or evaluation
SROI operating on two fronts:
1)
2)
Undertake R&D to create social science valid standard
Use existing available data for best use
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Impact Framework
United Way’s Logic Model
Org.’s
Mission
Activities
Outputs
Outcomes
Effect, impact & measurement
related back to MISSION
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Source:
United Way & Kellogg Foundation
Community
Goal
Social Return Framework
Adapted Logic Model
Input
(Investment)
Activities
Outputs
Outcomes
Effect, impact & measurement related
back to INPUT as a return ratio
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Source:
Soc. Ent. Assoc Microfinance and the Double Bottom Line, Ford Foundation
Impact
Premise
Given the model, assuming the organization
engages in same activities (& outcomes, outputs),
market rate investment is the best input.
Investment for social return:
• Larger pool of money
– ($1 trillion a day vs. donors’ est. $1 billion a year)
• ‘More’ social benefit
– ALL grant $ is social benefit based, investment $ is not
• ‘Frees’ up grants for other uses
– donors encouraged to take on higher risk activity
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Measuring Investment
Sources for Analysis
• Balance Sheet
Measurement Tools
• Weighted Average
Cost of Capital (WACC)
• Rating Reports
• Mix Market
• Operational & Financial
Self Sufficiency (OSS/FSS)
• Subsidy Dependency Index
(SDI)
• Market Efficiency Audit
• Investment Measurement
Are they
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Easy to use?
Compelling for Investment?
Operational & Financial
Self Sufficiency (OSS/FSS)
What they are.
• SEEP Definition
How they apply to Social Return.
• OSS / FSS demonstrate financial success
• Two examine question from different angles
Challenges & Problems.
Use = Mod
Invest = Depends
• Used for other purposes
• Not complete application
• What do numbers >100% mean here?
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Subsidy Dependency Index (SDI)
What it is.
• Amount an MFI must increase interest rates so
operations are at breakeven / sustainable levels
How it applies to Social Return.
• SDI shows how far rates charged are from
sustainable operating levels
Challenges & Problems.
• ‘Negative’ measure, little change is good
• Difficult to understand
• Its measurement is not central to social return
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Use = Low
Invest = Low
Market Efficiency Audit
What it is.
• Developed by David Korten, “When Corporations
Rule the World” to provide transparency on corporate
subsidies by measuring and displaying the subsidies
corporations received in production of their products
How it applies to Social Return.
• Designed with corporate social responsibility in mind
Not judgmental, geared towards transparency
Challenges & Problems.
• ‘Negative’ measure, 0 is good
• Not known & used
• Transferable to MFIs?
Source:
SEEP Korten,
- 10/03David. “A Market Based Approach to Corporate Responsibility.”
Use = Low
Invest =Maybe Mod
Investment Measurement
What it is.
• Hybrid: Korten’s transparency & SDI sustainability
• Uses available information
• Percentage an MFI’s capital is market rate investment
How it applies to Social Return.
• Demonstrative metric displays MFIs capital in concise
fashion. Easy to count & compare
Use = New
Challenges & Problems.
Invest = High
• New concept
• MFIs threatened by having a ‘low score’
• Already too much ‘noise’ in this area
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Measurement – General Example
Assuming $100 in Total Capital
Case 1 – All grants.
0 / 100 =
0%
Case 2 – All investment. 100 / 100 = 100%
Case 3 – All soft loans at 1/2 market rates.
(100 x .5) / 100 = 50%
Case 4 - $30 grants. $30 investment. $40 at
2/3 market rates.
((30 x 0) + (30 x 1) + (40 x .67)) / 100 = 57%
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Measurement – Specific Example
• Prisma Microfinance: for-profit US international
financial services company
• Received SROI Award – Global Social
Investment Forum (www.socialvc.net)
• Completely funded by private investment
Investment Measurement is 100%
• SROI Measurement
One year: Current portfolio x Investment Measurement
Five years: Current portfolio value
+ incremental portfolio value each year
x Investment Measurement
@ NPV (No terminal value to be conservative)
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Conclusion
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Consider how SR to be used in the industry
Value of a framework in the approach
4 Models considered here
Investment Measurement emphasized
– Not a solution, but a first step
Key Questions for feedback:
• It is logical? Does it have value?
• How to improve it or what would be better?
• This tool is one option; more work needed here
• Recommended next steps?
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Thank you!
Your feedback & participation
is encouraged!
Drew Tulchin
Social Enterprise Associates
www.SocialEnterprise.NET
drew@SocialEnterprise.NET
617-872-0194
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