1. SEEP - 10/03 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

2. SEEP - 10/03 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

3. SEEP - 10/03 Introduction Drew Tulchin, Social Enterprise Associates A network of professionals making communities better by applying business skills & sustainable practices. Who are you? What brought you here today? Who am I?

4. SEEP - 10/03 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 –Sro I External Economic Value created –i.e. return provided to society

5. SEEP - 10/03 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?

6. SEEP - 10/03 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)

7. 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)Undertake R&D to create social science valid standard 2)Use existing available data for best use

8. 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)Undertake R&D to create social science valid standard 2)Use existing available data for best use

9. SEEP - 10/03 United Ways Logic Model Org.s Activities Outputs Outcomes Community Mission Goal Impact Framework Effect, impact & measurement related back to MISSION Source: United Way & Kellogg Foundation

10. SEEP - 10/03 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

11. SEEP - 10/03 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

12. SEEP - 10/03 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 they Easy to use? Compelling for Investment?

13. SEEP - 10/03 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 = Mod Invest = Depends

14. SEEP - 10/03 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 = Low Invest = Low

15. SEEP - 10/03 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 = Low Invest =Maybe Mod

16. SEEP - 10/03 Investment Measurement What it is. Hybrid: Kortens transparency & SDI sustainability Uses available information Percentage an MFIs 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 = New Invest = High

17. SEEP - 10/03 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%

18. SEEP - 10/03 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)

19. SEEP - 10/03 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?

20. SEEP - 10/03 Your feedback & participation is encouraged! Drew Tulchin Social Enterprise Associates www.SocialEnterprise.NET drew@SocialEnterprise.NET 617-872-0194 Thank you!