The Double Bottom Line: Measuring Social Impact

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The Double Bottom LineMeasuring Social Impact

• 10/29/06

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3 Levels of Social Impact

• 1) Personal/Household level
• Empowerment of women
• Better education and further development of MFI
  clients
• Ability to cope with economic shocks
• Higher income
• Leads to access to education, sanitary
  infrastructure, food supply, etc.

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• 2) Local community Level
• Creation of jobs
• Higher quality of jobs
• More stable income
• More resilient to external shocks
• Cohesiveness of the community
• Healthy competition
• Entrepreneurship
• Leads to increased trade with neighboring
  communities and regions
• Improves economic base and resilience of the
  community

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• 3) Regional Level
• In many developing countries, microfinance is the
  backbone of the economy, providing up to 3/4 of
  the countrys jobs
• Especially in rural areas
• Mitigates the pressure on environment and natural
  resources
• Can help reduce migration flows to urban areas

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Importance of social performance indicators

• For investors
• Essential to have greater transparency and
  accountability
• They want to know the impact of their dollars
  SROI (Social Return on Investment)
• With the increasing investment of the for-profit
  sector, heightened emphasis on measurement and
  results
• They want a common set of expectations for
  metrics or standards
• Currently, minimal consensus across the sector on
  how to assess social impact
• If youre not using impact tools familiar to
  peer foundations or investors, its hard to
  leverage your own capital or mitigate risks by
  bringing in co-investors-- while this is often
  exactly what is needed to build robust impacts.

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• Of separate value from financial impact
  measurements
• Reliance on financial indicators alone risks
  mission drift, particularly where incentive
  systems reward financial outcomes but not social
  outcomes
• If only financial measures are available, then
  financial measures will drive investment
  decisions
• Private investment flows are likely to be biased
  toward a relatively small number of safe
  investments
• Particularly toward large/high profile MFIs
  offering high financial returns, even though
  other MFIs may actually offer higher blended
  (financial and social) returns
• Financial measures do not take into account wider
  social impacts

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Social Performance Indicators
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New Profit, Inc. (NPI)

• Balanced Scorecard a method of measuring and
  managing ongoing social and financial
  value-creation.
• Reflects three overall areas
• Growth (compound annual growth rates, revenues,
  numbers served)
• Quality (various improvement benchmarks)
• Leverage (metrics that gauge how well grantees
  leverage outside resources)
• Needs a theory of change
• NPIs philosophy the greatest leverage point in
  the nonprofit sector lies in growing
  high-performing nonprofits to scale.

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Roberts Enterprise Development Fund (REDF)
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• OASIS a comprehensive outcomes-tracking system
• Uses hierarchical linear modeling a new
  statistical process that uses embedded data to
  connect outcomes to specific interventions
• An internet-enabled relational database system
  that managers can use for ongoing management and
  performance benchmarking
• Helps managers benchmark in day-to-day
  operations, instead of just measuring outcomes
  after the fact.

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Measuring Wider Impacts

• Those beyond the immediate financial and social
  benefits for the individual.
• Occur in the following ways
• Labor market poor people taken on by expanding
  microfinance borrowers may be taken upward across
  the poverty line
• Capital market the intervention of a
  microfinance institution may make existing
  lending institution lower their interest rates to
  compete
• --gt beneficial effects on borrowers outside the
  microfinance scope

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• Markets for goods consumed by poor people
• Microfinance induces increase in supply
• --gt cheapening in price of goods
• Production Linkages an expansion of livelihoods
  induced by microfinance will support the
  formation of rural industries and services
• --gt bring income changes among non-borrower
  households

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Institutional Effects

• Stimulating innovation in social and economic
  organization
• Copycat activity
• At the national level-- prompting the state to
  encourage formal banking agencies to replicate
  methodologies of microfinance

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Impact on Policy

• Ways in which microfinance institutions have
  intentionally or unintentionally contributed to
  changes in policy regimes
• Intentional press governments to amend
  legislation to address a problem their members
  are facing
• Ex. on deposit holding
• Unintentional MFIs highlight policy or
  legislative loopholes or inadequacies
• Ex. Increasing significance of MFIs may prompt
  the drafting of a new regulatory framework