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Drew Tulchin Seep Conference Sroi Panel
 

Drew Tulchin Seep Conference Sroi Panel

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    Drew Tulchin Seep Conference Sroi Panel Drew Tulchin Seep Conference Sroi Panel Presentation Transcript

    • 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
      • Definition, Value & Goals of Social Return
      • Frameworks
      • Measuring Investment
      • Market Investment Measurement
      • Examples
        • General
        • Specific: Prisma Microfinance
      • Q&A
    • 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?
    • 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
    • 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?
    • 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)
    • 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:
      • Undertake R&D to create social science valid standard
      • Use existing available data for best use
    • 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:
      • Undertake R&D to create social science valid standard
      • Use existing available data for best use
    • Impact Framework United Way’s Logic Model   Org.’s Activities Outputs Outcomes Community Mission Goal   Effect, impact & measurement related back to MISSION Source: United Way & Kellogg Foundation
    • Social Return Framework Adapted Logic Model   Input Activities Outputs Outcomes Impact (Investment)   Effect, impact & measurement related back to INPUT as a return ratio Source: Soc. Ent. Assoc Microfinance and the Double Bottom Line , Ford Foundation
    • 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
    • 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?
    • 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
    • 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
    • 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
    • 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 = New Invest = High
    • 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%
    • 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)
    • 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?
    • Your feedback & participation is encouraged! Drew Tulchin Social Enterprise Associates www.SocialEnterprise.NET drew@SocialEnterprise.NET 617-872-0194 Thank you!