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  • A Joint Publication of

    The Small EnterpriseEducation and

    Promotion Network


    The MicrofinanceInformation eXchange

    (The Mix)

    Social return on investment(SROI) is an emerging conceptin economic development. Theterm SROI generally refers to amethod of measuring social ben-efits. It is expressed as social per-formance as a ratio to an input,typically capital. SROI is likelyto become increasingly relevantin microfinance as the industrytransitions from donor capital toprivate investment. In this con-text, SROI is a tool by whichMFIs can demonstrate theirsocial value, which is presumedto be important to attract sociallyresponsible investors to partici-pate in microfinance as well as toallocate different levels of sociallyresponsible investment to thoseMFIs offering varying risk andsocial/financial return.

    It is important to note up frontthat SROI is not impact assess-ment. Although SROI andimpact assessment utilize similarinformation and similar meth-ods, the two are distinct. SROIis a broader concept that includesimpact assessment within itsframework, but which also

    includes other concepts, such asmonetized outcomes and cost-benefit analysis.

    The purpose of this ProgressNote is to introduce key conceptsof SROI to the SEEP Networkand broader microfinance com-munities. In the following sec-tions, this Progress Note discuss-es factors contributing to SROIemerging on the microfinanceagenda, explores SROIs value tomicrofinance institutions,describes some SROI tools withexamples, and suggests next stepsfor microfinance practitioners indeveloping/promoting SROIwithin the microfinance industry.


    The SROI framework is depictedin Figures 1 and 2. As seen inFigure 1, below, an organizationcreates value over time (t on the zaxis). Its foundation is capital(investment on the x axis). Theorganization is built up fromcapital by a mission led, but mar-ket driven, plan (the y axis).

    Social Return on Investment and Its Relevance to Microfinance

    Didier Thys Drew Tulchin, Social Enterprise AssociatesChandni Ohri, Grameen Foundation USA

    PROGRESS NOTE No. 12 October 2005

  • 2 PROGRESS NOTE No. 12 October 2005

    Implementing the plan createssocial and economic value, meas-urable in quantifiable andunquantifiable ways.

    In Figure 2, the SROI frameworkexpresses the Y axis from Figure 1

    above as a flow along a continu-um. The input (investment)generates mission driven activi-ties. These create outputs (aphysical good, like a widget or aservice, such as a loan).Outcomes are by-products of the

    outputs. Impacts are the resultsof outcomes. Impacts are in turnmeasured in relation to originaloutput.1

    Figure 1: Understanding Value Creation

    Figure 2: SROI Framework Logic Model

    Source: Kim Alter, Virtue Ventures, SEEP Annual Meeting, October 2003

    Source: Drew Tulchin, Social Enterprise Associates paper, Microfinance and the Double Bottom Line

    1 The framework does not distinguish between direct or indirect results during the process of converting inputs to impacts. Proving the linkage between the inputand the outcomes/impacts is common ground with impact assessment.

  • 3 PROGRESS NOTE No. 12 October 2005


    A combination of several factorshas resulted in SROI beingplaced on the microfinance agen-da. The following factors areboth broad in origin and specificto microfinance.

    Broad Factors

    Increased accountability fornon-profits: Institutional andindividual donors areincreasingly demandinggreater accountability andtransparency from the non-profits they support. Thecharity model of doinggood works is no longersufficient justification forfunding. Like their for-prof-it counterparts, non-profitinstitutions are expected todemonstrate their valueadded.

    United Nations MillenniumDevelopment Goals(MDGs): The UN estab-lished the MDGs to eradi-cate extreme poverty andhalve the number of poorpeople by 2015. This ambi-tious goal focuses on out-comes rather than inputs anddraws attention to the socialperformance of developmentinstitutions and their abilityto measure and demonstrateresults.

    Growth in socially responsi-ble investing (SRI): The SRIsector has sustained growthof 15% a year for more thana decade. SRI investments in2003 totaled more than $2.2

    trillion. Nearly one in nineprofessionally managed dol-lars in the US is investedwith at least a social screen.Efforts to define and measuresocial benefits presumablyincrease the attractiveness ofinvestment alternatives forsocially responsible investors.

    Microfinance Specific Factors

    Insufficient donor funds toaddress market demand:Demand for microfinance farexceeds donor supply offunds. Donors provide anestimated $500 million ayear to microfinance. MFIgrowth requires billions ofdollars. MFIs need to accessnew sources of private capitalto meet global demand formicrofinancial services.

    Need to define and differen-tiate MFI performance:Competition for capitalbetween MFIs requires insti-tutions to seek new ways toattract investor attention.Measuring social returnoffers MFIs an opportunityto differentiate themselves inthe marketplace, especiallywhen financial performanceis similar, and raise attrac-tively priced funds.

    Legislative mandate todemonstrate poverty out-reach: Legislation requiringUSAID-funded MFIs todemonstrate poverty out-reach has propelled povertyassessment, and more gener-ally social return measure-ment, to the top echelon ofindustry priorities.

    In addition to the above factors,the rise of SROI on the microfi-nance agenda is attributed to thebenefits it offers MFIs and otherstakeholders. To MFIs, SROIoffers:

    Promotes customer-centeredservice delivery.

    Makes measurement of socialperformance possible, pro-viding management a mecha-nism to manage toward adouble bottom-line.

    Provides information,enabling management tomake more informed decisions.

    Improves financial and socialbottom lines.

    To external stakeholders, SROIoffers the following potentialbenefits:

    Establishes transparency indocumenting social performance.

    Permits comparisons betweenorganizations in social performance.

    Links MFI performance tothe UN MGDs.

    Connects a social return tothe investment inputs.

    Increases investment flowsinto microfinance andimproves efficiency of invest-ment allocations.

  • 4 PROGRESS NOTE No. 12 October 2005


    SROI measurement tools can begrouped into two categories.One group emphasizes processvalidation for performance-basedindicators while the other focuseson outcomes and monetization.

    Group 1: Process Validation

    A fundamental driver of socialreturn is taking a specified mis-sion, consider the activities gen-erated to accomplish it, andmeasure the outputs of thoseactivities. The tools in this groupemphasize how this is done bymeasuring business processes.Broadly, these tools tend to bedescriptive and qualitative. Theirprimary use is tracking changeover time and progressiontowards a goal in relation to theunderlying mission. Tools in thisgroup include (1) the BalancedScorecard, (2) Global ReportingInitiative, (3) AccountAbility1000, and (4) CalvertFoundations SROI Calculator.

    Balanced Scorecard. TheBalanced Scorecard (BSC)expands beyond financial activityby establishing a link betweenand tracking of the mission,goals, and performance. BSCtracks organizational behavior infour areas: financial, customer,internal business processes, andlearning/growth. In each of thefour areas, management choosesgoals, develops key indicators torepresent core activities, and thencompares performance with stat-ed objectives.2 The BSC is apractitioner-centered device thatempowers management. It trans-

    lates mission into concretebehavior and enables outcometracking.

    Global Reporting Initiative.The Global Reporting Initiative(GRI) establishes and publishesvoluntary performance guide-lines. It uses an oversight board,like the Financial AccountingStandards Board, to recommendprocedures and enact changes toguidelines. Standardized report-ing guidelines establish the vari-ables to measure, indicate how tomeasure them, and provide datapresentation formats. Indicatorsare divided into the followingfive areas: economic, environ-mental, social, human rights, and workplace. GRIs inclusiveframework defines a role for allstakeholders. It emphasizestransparency, trend analysis, andincremental improvement.3

    AccountAbility 1000.AccountAbility 1000 (AA1000)is a foundation standard, whichcomprises principles and a set ofprocess standards. A set of keyprinciples aim to stimulate inno-vation above an agreed qualityfloor, rather than encouragingthe development of a more rigidcompliance-oriented culture.AA1000 focuses on engagementwith stakeholders, seeking to linkthe defining and embedding ofan organizations values to thedevelopment of performance tar-gets, in order to tie social andethical issues into the organiza-tions strategic management.

    Organizational learning andimprovement is seen as central tothe approach, as is the linkbetween organizational accounta-bility and developing trust withstakeholders. As a process stan-dard, rather than performancestandard, AA1000 specifies theprocesses that an organizationshould follow to account for itsperformance, not the levels ofperformance the organizationshould achieve.4

    Calvert Foundations SROICalculator. Calvert Foundationhas developed its own SROI cal-culator using self-reported datafrom organizations in its portfo-lio. The web-based tool com-putes social outcomes based on agiven investment amount in theCalvert portfolio. It provides aspecific, readily understood, estimate of the social good pro-duced by a specific monetaryinvestment.5

    Group 2: Social Outcomes andMonetization

    Tools falling in this group seek toquantify social benefits. This isaccomplished by monetizingsocial returns in relation toinvestment. A number of formu-las have been developed to quan-tify the blended value of socialand financial returns. The equa-tions concentrate on net financialreturn and net social value divid-ed by the investment costs for agiven period. The precise meas-urement depends on the indica-

    2 For more information and details, see 3 All materials are free to download, see 4 Definitions are elaborated, see The tool can be used online, see

  • 5 PROGRESS NOTE No. 12 October 2005

    tors used, with a typical calcula-tion estimating value creationthrough direct (e.g., increasedincomes) and indirect (e.g., pub-lic expenditures saved) outcomes.

    Freedom from Hungersapproach to measuring the SROIof its Credit with Education serv-ice delivery model is a goodexample of this type of tool. Themission statement (or valueproposition) of Freedom fromHunger is to reduce malnutritionin children less than five yearsold. Consequently, its SROI toolestimates social return in fourareas:

    1. Lives saved due to informa-tion from health education.

    2. Money saved by membersdue to the lower cost offinancial services.

    3. Net income earned by theorganization offering Creditwith Education services.

    4. Subsidy invested to createand/or expand Credit withEducation services.

    The computation they use fortheir specific SROI is as follows:

    1. Value of lives saved (numberof lives saved * GNP percapita * life expectancy).

    2. Net gain to the user (cost ofborrowing from moneylend-er cost of borrowing fromorganization offering Creditwith Education).

    3. Financial income to the MFI[income (administrativecosts + loan loss reserve +cost of funds)].

    4. Investment costs (grants +subsidies).

    Much work remains to refineexisting tools and develop newones to measure SROI. The fieldis young, but growing rapidly.There exists ample opportunityfor microfinance researchers andpractitioners to contribute to thediscussion, test existingapproaches or develop new ones,and disseminate lessons learnedand other information.


    This Progress Note hopes toencourage practitioner activity indeveloping and adapting SROIfor microfinance. The followingactions are proposed.

    Add the topic of SROI tomore microfinance confer-ences. Social return can read-ily be promoted in industryconferences, publications,and trainings. Given themainstream growth of theconcept, it is a good connec-tor for microfinance to thegreater SRI and investingpublic.

    SEEP working groups: Thiseffort will utilize SEEPsestablished channels for sup-porting practitioner intereston the emerging subjects in

    the field and has begun to beincorporated in other areasof SEEP, including SocialPerformance.

    Involve social investors anddonors: Encourage the MixMarket to work with the SRIcommunity to identify theirpriorities and interests insocial return and socialreturn measurement.

    MicroBanking Bulletin issue:Once there is a critical massof interest in SROI in theindustry, devote aMicroBanking Bulletin issueto this topic.

    The end goals of these proposedactions are to:

    Increase attention on MFIsocial performance.

    Develop standards for socialreturn in microfinance.

    Incorporate new tools toinform management andinvestor decision-making.

    Increase socially responsibleinvestment in microfinance.

    It is hoped that practitioners willtake the opportunity to partici-pate in the process of buildingcollective knowledge in thisimportant topic and demonstratethe unique value-added of microfinance.

  • Authors

    Didier Thys, Drew Tulchin, Social Enterprise AssociatesChandni Ohri, Grameen Foundation USA


    Jennifer E. Hansel, The SEEP Network


    For additional information or to order additional copies, contact The SEEP Network.1825 Connecticut Avenue, NWWashington, DC 200095721 USATel: 202.884.8392Fax: 202.884.8479E-mail:

    Progress Notes

    Previously published in this series: Progress Note No. 1, Integrating Poverty Assessment into Client Assessment. Progress Note No. 2, Analysis of Client Assessment Data. Progress Note No. 3, Institutionalizing Client Assessment: The Activists for

    Social AlternativesIndia. Progress Note No. 4, The Emerging Role of Microfinance Programs in Mitigating the

    Impact of Natural Disasters: Summary Findings of an Impact Assessment of World VisionsEthiopian Affiliate.

    Progress Note No. 5, Conflict and Post-Conflict Environments: Ten Short Lessons ToMake Microfinance Work.

    Progress Note No. 6, Client Assessment Lessons Learned. Progress Note No. 7, Benefits of Client Assessment Progress Note No. 8, Using Microfinance Networks to Promote Client Assessment:

    Case Study of ASOMIF Progress Note No. 9, Toward a Complete Progress Tracking System Progress Note No. 10, Measuring Poverty Directly: Insights from ACCIONs Poverty

    Assessment Project Progress Note No. 11, Microfinance and Social Performance: How FINCA Used a Client

    Assessment Tool to Identify Mission Drift Conceptual Note on Social Performance Management

    To read other titles from the Progress Note series, visit

    6 PROGRESS NOTE No. 12 October 2005