measuring market rate investment: a first step in social return for microfinance
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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. SROI Panel: Measuring Market Rate Investment. Introduction - PowerPoint PPT PresentationTRANSCRIPT
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Measuring Market Rate Investment:A first step in Social Return for Microfinance
Drew Tulchin
Social Enterprise AssociatesSocial Return on Investment (SROI) Panel
SEEP Network Annual Conference
Oct, 2003
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SROI Panel: Measuring Market Rate Investment
• 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
Drew Tulchin,Social Enterprise
AssociatesA network of professionals making communities better by applying business skills &
sustainable practices.
Who are you? What brought you here today?
Who am I?
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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
• 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?• 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
• 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) Undertake R&D to create social science valid standard 2) Use existing available data for best use
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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) Undertake R&D to create social science valid standard 2) Use existing available data for best use
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United Way’s Logic Model
Org.’s Activities Outputs Outcomes Community Mission Goal
Impact Framework
Effect, impact & measurement related back to MISSION
Source: United Way & Kellogg Foundation
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Adapted Logic Model
Input Activities Outputs Outcomes Impact(Investment)
Social Return Framework
Effect, impact & measurement related back to INPUT as a return ratio
Source: Soc. Ent. Assoc Microfinance and the Double Bottom Line, Ford Foundation
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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• Weighted Average Cost of Capital (WACC)• Rating Reports• Mix Market
Measurement Tools• Operational & Financial Self Sufficiency (OSS/FSS)• Subsidy Dependency Index (SDI)• Market Efficiency Audit• Investment Measurement
Are theyEasy to use?
Compelling for Investment?
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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.• Used for other purposes• Not complete application• What do numbers >100% mean here?
Use = ModInvest = Depends
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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
Use = LowInvest = Low
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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: Korten, David. “A Market Based Approach to Corporate Responsibility.”
Use = LowInvest =Maybe Mod
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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
Challenges & Problems.• New concept• MFIs threatened by having a ‘low score’• Already too much ‘noise’ in this area
Use = NewInvest = High
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Measurement – General Example
Assuming $100 in Total CapitalCase 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 investmentInvestment 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• 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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Your feedback & participation
is encouraged!
Drew TulchinSocial Enterprise Associates
www.SocialEnterprise.NET
617-872-0194
Thank you!