Posts Tagged ‘social performance’

“Financial Vandalism” in India, and a Way Forward

August 15, 2012

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

I was invited to give one of the closing keynote addresses to the Sa-Dhan conference, something I had been preparing for at least since I travelled to India in early July to work on an upcoming book about the latest trends in microfinance.  I had intended to arrive in time for the inaugural session on August 7, but travel delays prevented that.  (Word to the wise: when travelling to India on the non-stop flights from Newark, plan to arrive in Newark long before your onward flight is due to depart.)

Upon arrival, I was told that the conference’s mood on the first day alternated between “somber” and “angry.”  Just a few days earlier, the Reserve Bank of India (RBI) had announced new regulations affecting microfinance.  Though these policies rolled back some harmful policies announced a few months back and helpfully clarified others, they also introduced a controversial new rule saying that microfinance institutions over a certain size would be subject to smaller margins than they were currently allowed between the rates they borrowed and lent at.  The whipsaw nature of Indian microfinance policy at the national level, coming on the heels of the debilitating and draconian law passed in the state of Andhra Pradesh in late 2010, had justifiably enraged many of the practitioners in attendance – particularly as there had been no warning or explanation for many of the policies announced over the last 12 months.

Grameen Foundation President and CEO Alex Counts (lefts) speaks about the Indian microfinance sector at the Sa-Dhan Conference held earlier this month in that country. With him on stage are Jayshree Vyas (center), Managing Director of SEWA Bank, who served as the moderator, and Sujata Lamba of the World Bank.

Grameen Foundation President and CEO Alex Counts (left) speaks about the Indian microfinance sector at the Sa-Dhan Conference held earlier this month in that country. With him on stage are Jayshree Vyas (center), Managing Director of SEWA Bank, who served as the moderator, and Sujata Lamba of the World Bank.

The second day did not get off to a good start.  Sa-Dhan executive director Mathew Titus announced that a senior government official had canceled his opening address.  However, as the day got going, the overall mood improved.  Royston Braganza, CEO of Grameen Capital India, organized and moderated an excellent panel on “Overcoming the Barriers to Resource Flows” to the sector.  (Grameen Capital India is a joint venture between Grameen Foundation and affiliates of two major banks operating in India.)

I attended Royston’s panel and then caught the end of a concurrent panel on “business correspondent” (BC) models for MFIs working in partnership with, and essentially as agents of, fully licensed banks.  Though some recent policies about the BC model have cast doubt on the viability of MFIs being able to work effectively with banks, it was an invigorating discussion.  Mukul Jaisal, Managing Director of Indian microfinance institution (MFI) Cashpor, talked about his experience pioneering this model for providing savings services (which the MFI has been able to implement with support from Grameen Foundation).

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Things Move More Slowly in Africa

June 27, 2012

Shannon Maynard is Director of Bankers without Borders® (BwB), Grameen Foundation’s skilled-volunteer initiative. Maynard has more than 15 years of experience in nonprofit management and volunteer mobilization. Before joining Grameen Foundation, she served as Executive Director of the President’s Council on Service and Civic Participation, and managed strategic initiatives for the Corporation for National and Community Service, a federal agency. This post is the third in a four-part series; you can read her first post here, and her second post here.

“Things move more slowly in Africa” – this is a common refrain for many of us at Grameen Foundation when we find ourselves experiencing hurdles with our work in places like Nigeria and Ethiopia. In fact, African countries and the organizations we work with do often lack the infrastructure – particularly the Internet connectivity – that contributes to the fast-paced, rapid-response world that those of us based in the United States have grown so accustomed to. Slower is also a word I’d use to describe Bankers without Borders’ own presence in Sub-Saharan Africa.

Joining Grameen Foundation after primarily working with US-based NGOs, I remember my own first experiences arranging a call with a microfinance institution (MFI) leader in Sub-Saharan Africa – fumbling around with Skype to enter the correct phone number, then getting a voicemail message in a language I couldn’t understand. It might take a few weeks of trying to connect at a time convenient for us both. In those early days, Grameen Foundation did not have local offices or staff in places like Nairobi, Accra or Kampala. Cultivating relationships and managing projects is difficult to do from a different continent, which is why I am amazed we were actually able to do any work in places like Ghana and Nigeria in those first few years of BwB.

Over the past year, however, BwB has been able to gain some traction in the region, thanks to the regional leadership of Erin Conner and Steve Wardle, and BwB Regional Program Officer Martin Gitari, all based in Nairobi.

David Washer (right) spent a week meeting clients and lending his skills in finance to Eshet, an Ethiopian microfinance institution, as part of Bankers without Borders' FiDavid Washer (right) spent a week meeting clients and lending his skills in finance to Eshet, an Ethiopian microfinance institution, as part of BwB's Financial Modeling Reserve Corps.nancial Modeling Reserve Corps.

David Washer (right) spent a week meeting clients and lending his skills in finance to Eshet, an Ethiopian microfinance institution, as part of BwB’s Financial Modeling Reserve Corps.

Grameen Foundation’s own programs, particularly our MOTECH work in Ghana and Community Knowledge Worker (CKW) program in Uganda, are BwB’s biggest clients. In our early days, we had a hard time convincing Grameen Foundation’s own technology teams of the services we could provide, because Grameen Foundation’s own employees assumed BwB was only focused on connecting bankers with microfinance institutions (a fair assumption, given our name). Thanks to some education on our part and the willingness of these programs’ leaders to give us a try, we’ve been able to place volunteers such as Chris Smith and Gillian Evans (a husband-and-wife team) with CKW and Roche employee Lynda Barton with MOTECH, in year-long placements. We’ve worked with CKW to establish a local collaboration with Makere University to provide interns to our Uganda office each semester. And we’ve just finalized arrangements to engage a Glaxo Smith Kline employee with the CKW team on a six-month assignment, starting this month.

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Tipping: A Viral Infection We Want to Catch

June 15, 2012

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

At Grameen Foundation, we often talk of the concept of “tipping,” which was popularized by the book The Tipping Point by Malcolm Gladwell.  I define the concept as taking something, such as an idea or a product, to the point where it starts to spread virally, exponentially and without much additional effort.  For an organization like Grameen Foundation that works with limited resources to make significant impact on a global problem such as poverty, it is a very important concept.  Through tipping, our early seeding and nurturing of innovations can lead to their widespread adoption by poor people, the organizations that serve them, and even by businesses and governments.

One example is our Growth Guarantees program, which pioneered loan guarantees to forge mutually beneficial business relationships between local commercial banks and microfinance institutions (MFIs) working to alleviate poverty.  In the program, we not only directly consummated transactions (bringing nearly $200 million to MFIs, who were then able to help more than 1 million new poor borrowers), but more importantly, proved the concept and prompted many other banks to follow suit (even without guarantees from Grameen Foundation).  Likewise, our efforts to replicate the highly successful village phone program of Grameen Telecom, initially in Uganda, set in motion dozens of “village phone” initiatives, most of which we had no direct role in starting or managing.

The PPI is a simple, short, country-specific survey that poverty-focused organizations can use to better understand the people they're trying to help, as well as the effectiveness of their work. This is a screenshot of the PPI for the Philippines.

The PPI is a simple, short, country-specific survey that poverty-focused organizations can use to better understand the people they’re trying to help, as well as the effectiveness of their work. This is a screenshot of the PPI for the Philippines.

I thought a lot about Grameen Foundation’s role in “tipping” last week when I flew to Jordan to attend the annual meeting of the Social Performance Task Force (SPTF), a group in which Grameen Foundation has been deeply involved for years.  More than 300 people attended.  The SPTF sets standards and shares best practices for those practicing ethical, poverty-fighting microfinance.  Partly as an acknowledgment of Grameen Foundation’s central role in the task force, I was asked to give the closing remarks at a historic “CEO Roundtable” where the heads of leading MFIs came together to discuss implementation of the just-completed “universal standards for social performance management.”  The standards have the potential to reshape how MFIs around the world work in fighting poverty, mainly by comprehensively adopting what have emerged as effective practices through the task force’s dialogue and research over many years.

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Reporting from Hong Kong

June 14, 2012

Shannon Maynard is Director of Bankers without Borders®, Grameen Foundation’s skilled-volunteer initiative. Maynard has more than 15 years of experience in nonprofit management and volunteer mobilization. Before joining Grameen Foundation, she served as Executive Director of the President’s Council on Service and Civic Participation, and managed strategic initiatives for the Corporation for National and Community Service, a federal agency. This post is the first in a four-part series.

The summer after I joined Grameen Foundation to run Bankers without Borders (BwB), I had the pleasure to travel to Shanghai, China, where we had amassed a significant pool of advocates for our work – the “Shanghai Volunteers.” I met with these inaugural members of our BwB community (organized by uber-volunteer Susan Place Everhart) and joined Jennifer Meehan, our Regional CEO for Asia, in meetings with potential corporate partners for Grameen Foundation’s work in the region.  After spending time in Shanghai, I then traveled to Bangalore, India, where BwB was undertaking one of its first corporate collaborations and field-based projects in Asia, with Grameen Koota and a team of volunteers from Accenture, Dow Chemical and Citi.

It’s now three years later, and I am headed to Hong Kong – Grameen Foundation’s regional headquarters for Asia – to spend time with Sharada Ramanathan, the extraordinary woman behind BwB’s presence today in Asia. Working with Grameen Foundation’s regional staff, we’ll brainstorm how to continue to deeply integrate volunteers into the way Grameen Foundation does business – from helping us fundraise and addressing our own capacity gaps, to creating standard roles for volunteers in delivering our programs and services in Asia. We’ll also look at how we continue to share the skills and expertise of volunteers in our database – more than 20% of whom are based in Asia – with other social enterprises that have a market-based approach to improving the lives of the poor.

BwB Regional Program Officer for Asia, Sharada Ramanathan, and Director Shannon Maynard are spending a week meeting with volunteers and supporters in Hong Kong.

BwB Regional Program Officer for Asia, Sharada Ramanathan (left), and Director Shannon Maynard are spending a week meeting with volunteers and supporters in Hong Kong.

As I prepare for this trip, I think it’s worth reflecting on some of BwB’s successes, failures and insights from our three-year history in Asia.

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Making Progress Through Savings

June 14, 2012

Kimberly Davies is a program officer on Grameen Foundation’s Financial Services team.

Traveling to the field and talking with clients is the favorite part of my job.  I’ve worked in microfinance for five years and think daily about the poor women and families whom we support. Working with partner organizations and meeting clients face-to-face not only reminds me of why I’m in this field – it also helps me better understand the poor’s demand for financial services and the many challenges involved in providing those services.

It has been really exciting to see the progress of our microsavings project in India.  The first time I visited our partner organization Cashpor Micro Credit – a poverty-focused microfinance institution (MFI) in Varanasi, India – it was not yet offering savings products to its clients. This was partly due to complex Indian regulations requiring MFIs to work with banks to provide savings. Since then, Cashpor partnered with ICICI Bank and Eko Technologies (a tech provider that enables savings via the mobile phone) to launch a new savings product in the summer of 2011.

Microsavings accounts provide poor parents with a safe place to save for their children's future.

Microsavings accounts provide poor parents with a safe place to save for their children’s future.

Since the launch, Cashpor has added about 250 new savers every day, and currently has more than 60,000 savings accounts. Cashpor’s clients have spoken loud and clear about their desire to save. Clients told us during my last visit that they wanted their own safe savings accounts, but I wasn’t sure what the real demand truly was. It’s also challenging to offer convenient services to clients, because some do not have cell phones, most can’t read and many are even numerically illiterate. These challenges, on top of others, were things that I knew would take time to navigate.

However, the huge demand does make sense. A safe place to save is critical for families, because it helps them smooth consumption during times of sporadic income, or prepare for an emergency or a planned lifetime event. Of course, people want convenient tools to help them better manage their lives. In the United States, we have access to so many financial tools in our everyday life – various savings accounts we can access at any time, insurance, loans, locked CDs that yield a safe and consistent interest rate, etc. You name it, we have it. The poor want these same tools.

Truly moving out of poverty is a huge task. Though tools like the Progress Out of Poverty Index® can measure the likelihood that an MFI’s client base is poor and track its movement out of poverty over time, this is a complex thing to measure, because forces such as natural disasters and family illnesses can prevent people from moving out of poverty or cause them to slip back into poverty. These uncontrollable forces make the use of easily accessible and affordable financial tools – such as savings accounts – all the more important to the poor.

Again and again, I’ve seen with my own eyes and heard with my own ears how access to financial services has improved the lives of poor people and their families. I look forward to seeing Cashpor’s savings program grow even more over the next year, as they help more women and families in need.

David Roodman Does His “Due Diligence,” and Gets it Mostly Right

February 16, 2012

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

David Roodman, Senior Fellow at the Center for Global Development, the country’s leading think tank on overseas aid and international development, has written Due Diligence: An Impertinent Inquiry into Microfinance, a remarkable book about microfinance.  It is, quite simply, the best book I have ever read about microfinance among the many I have gone through.  He analyzes the history, track record, recent developments and future of microfinance, and though I do not agree with all of his judgments, I agree with the vast majority of them and admire how he went about deconstructing such a diverse arena of human endeavor.

Most impressive is how he carries the reader through his rigorous thought process.  He repeatedly poses important questions, weighs the evidence, assesses whether there is enough information to make a definitive judgment, presents alternative answers and their implications, admits to a degree of uncertainty, and then does his best to provide an answer – all in plain language.  The hallmarks of his writing are nuance, detail-based distillations of publicly available information, fairness and dispassionate analysis.  If I had to keep one book on my desk for easy access to guide my writings, conversations, analysis and decisions, it would be his.  (Due Diligence is the culmination of research and writing process that played out on his blog, which has evolved to become a leading online source for microfinance information and analysis over the past couple of years.)

Cover of David Roodman's "Due Diligence"

Alex Counts, Grameen Foundation's president and CEO, calls David Roodman's new publication "the best book I have ever read about microfinance."

After some introductory remarks, Roodman sets the modern microfinance movement in a historical context, and does this better than I have ever seen before.  His survey also provides some important lessons for those working to expand and improve microfinance today.

The bulk of the book addresses the question “Does microfinance work?” in distinct ways. Does microfinance reduce poverty, does it improve the control the poor have over their lives regardless of whether it leads them to a poverty-free life and, thirdly, has it become a vibrant new industry that strengthens societies by enhancing ecosystems (in the broadest sense) consistent with long-term socio-economic development?  I admire how he has given equal weight to the three dimensions of “working” – I strongly agree with him that all are important and the latter two (especially the third) have been comparatively neglected by microfinance advocates and critics alike.

Due Diligence deserves to be read by anyone involved in microfinance, including those who volunteer their time or contribute and/or invest their money.  Let me summarize how he answers the main questions he asks, as well as his recommendations, and then distill how I believe someone involved with Grameen Foundation – or any microfinance network or institution – should feel about their past and future involvements, given his judgments and recommendations.

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CEOs Release “Road Map for the Microfinance Industry”

January 18, 2012

The founding members of the Microfinance CEO Working Group — which includes the CEOs of pioneering microfinance organizations ACCION, FINCA, Freedom from Hunger, Grameen Foundation USA, Opportunity International, Pro Mujer, VisionFund International and Women’s World Banking — have just released the “Road Map for the Microfinance Industry: Focusing on Responsible and Client-Centered Microfinance.”

This document outlines the Working Group members’ vision for the positive evolution of the microfinance field and underscores their commitment to raising industry standards, starting with their own.  Central to this vision is the Working Group’s support for three ambitious initiatives that are helping to lay the groundwork for a more responsible, client-focused and transformative industry: the Smart Campaign, MicroFinance Transparency and the Social Performance Task Force’s universal standards for social performance management.  Alex Counts first talked about the group and its goals in this blog post.

The CEOs of microfinance-focused organizations have agreed on a common approach to pursue going forward, to ensure that they are serving the poor in the best way.

The Microfinance CEO Working Group members call for their valued peers in the microfinance industry to take action by endorsing these three initiatives, transforming their principles into action, and striving for better ways to provide financial services for the poor.

The full text of the letter can be read here.

The Working Group welcomes your comments and feedback. For more information, please contact Meghan Greene, manager of the Microfinance CEO Working Group, at mgreene@accion.org.

Prof. Yunus Visits Haiti – an Update from Alex Counts

October 16, 2011

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

I am about to leave Haiti after four exciting days, and head to Dubai.  I am here in connection with Professor Muhammad Yunus’s first trip to Haiti.  Highlights abound – it is hard to know where to start.

I arrived a day early to do some interviews related to my book on Fonkoze, the country’s leading microfinance institution (MFI). Prof. Yunus’s first stop was a meeting with Haitian President Michel Martelly, who was inaugurated earlier this year.  By coincidence, the long process of forming a government (i.e., naming all the ministers who serve under him) had just been completed, so Prof. Yunus was able to meet all the new cabinet members just before they were to be introduced to the country.  President Martelly expressed sincere interest in helping create a positive environment for social business – Prof. Yunus’s main passion now – as well as microfinance.

From there, Prof. Yunus went to the first part of a two-day conference on social business.  His opening speech – delivered, as always, without notes – covered the theory of social business, as well as practical examples of how it has worked in Bangladesh, especially his joint ventures with the Danone Group and Veolia.  (He mentioned a study of the nutritional impact of Grameen-Danone, which is coming out in a month and shows that the impact of the program – in which poor women sell nutritious, inexpensive yogurt to other poor mothers and their children – was much greater than even he expected!)

Prof. Muhammad Yunus talks to a group of borrowers involved in Fonkoze's “Ti Kredi” program.

Prof. Muhammad Yunus talks to a group of borrowers involved in Fonkoze's “Ti Kredi” program.

He also talked about how he was afraid that the aid coming to Haiti after the earthquake would be wasted unless it was used to build up independence, rather than greater dependence on charity.  Finally, he told some stories about Grameen Bank and its history, and marveled at how microfinance has grown globally to almost every country, mentioning Fonkoze and its status as the leading MFI there (eliciting spontaneous applause) and celebrating Grameen Foundation’s important role in supporting Fonkoze.

The conference continued through midday Friday.  Anne Hastings, the director of Fonkoze Financial Services (Fonkoze’s for-profit arm), and I were on a panel with Prof. Yunus, where – alongside two Haitian economists – we responded to questions posed by the moderator and the audience.  In response to a question about my upcoming book on Fonkoze, I said that it was critical features for microfinance and social business to rigorously track social-impact outcomes.  In that context, I explained how the Progress out of Poverty Index® was based on Grameen Bank’s 10 Indicators of Poverty and had been incorporated into Fonkoze’s own social-impact monitoring tool.  In response to another question, I said that there were potentially powerful alliances between MFIs and their most successful clients on the one hand, and the social business movement in Haiti on the other.  Anne added some excellent points that built on those made by Prof. Yunus.

On Saturday, we took a field trip together.  The highlight was the first stop – visiting a Fonkoze “Ti Kredi” center of about 50 women who 10 days earlier had just gotten their first loan of $25.  (They are to make their first payments next Wednesday.)  After long-time Fonkoze employee Gautier Dieudonne introduced him, Prof. Yunus spoke to the group about Grameen Bank, Bangladesh, microfinance, mangos and much else, and asked the women a lot of questions. There was much laughter during some of the lighthearted exchanges, while serious topics were also explored, related to how microfinance can go off course at the village level and nationally – and what can be done about it.  He asked how much local moneylenders charge – the answer was 20% per month – and the women praised Fonkoze for offering a much lower rate.

After the center meeting we had a nice afternoon with representatives from Zanmi Lasante/Partners in Health, the organizations founded by Paul Farmer.

I think the most poignant moment came when Prof. Yunus asked whether the women thought they were going to be able to improve their lives with such small loans.  An older woman named Clenie Brisfor stood up and said, “It is not easy, but what else are we going to do?  We can make progress!  Even if we have only 1 gourd [about 5 cents], we can buy a packet of clean water and re-sell it for a small profit, and start the process of changing our lives.  So 1,000 gourdes [$25] is a lot!”

Fonkoze borrower Clenie Brisfor tells Prof. Yunus that, with access to small loans through Fonkoze, "We can make progress!"

Fonkoze borrower Clenie Brisfor tells Prof. Yunus that, with access to small loans through Fonkoze, "We can make progress!"

I wonder how many Americans understand what $25 – or even 5 cents – can do to change someone’s life, as well as their sense of what is possible? As we’ve seen again and again, access to financial services can provide the poor with an opportunity to empower themselves, live up to their potential and realize the human dignity that we all deserve.

Working Together to Improve the Microfinance Sector

September 8, 2011

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

One of the most familiar critiques of the social (or not-for-profit) sector by those outside of it – those in business or academia, for example – is that we are a very fragmented community of organizations that don’t talk to each other, much less collaborate as often as we should.  This results in duplication of effort and capacity, as well as unnecessary and unhealthy competition.  While often exaggerated, this criticism has some merit, and the socially-motivated international microfinance networks (as well as the microfinance sector generally) are hardly immune.  (We have our own criticisms of business and academia, but we’ll leave those for another day.)

For microfinance, 2010 was a year of upheaval and taking stock.  When it began, crises of various origins were still being felt in Morocco, Pakistan and Nicaragua.  Twelve days into the year, a massive earthquake hit Haiti, negatively affecting many microfinance institutions (MFIs) there.  Fortunately, Haitian MFIs, including Grameen Foundation’s long-time partner Fonkoze, have bounced back faster than anyone expected, as I have written in a separate blog.

A few months later, a controversial initial public offering by SKS Microfinance, a leading MFI in India, led to a backlash among the media, political leaders and civil society in general – especially in the Indian state of Andhra Pradesh.  (In the early days of that crisis I debated the founder of SKS, which was quite interesting to say the least!) As the year ended, the Bangladeshi government began to harshly criticize and harass Grameen Bank, the country’s flagship MFI, which led to violence against the bank’s employees and, ultimately, to the forced and premature retirement of its founder, microfinance pioneer Professor Muhammad Yunus.  (For more on the Bangladesh crisis, click here.)

Debate moderator Niki Armacost, co-founder of Arc Finance, with Alex Counts, at his October 2010 debate with Vikram Akula, chair and founder of SKS, at the Asia Society.

Debate moderator Niki Armacost, co-founder of Arc Finance, with Alex Counts, at his October 2010 debate with Vikram Akula, chair and founder of SKS, at the Asia Society.

This was a far cry from the celebrations of microfinance in 2005, the U.N.’s “International Year of Microcredit,” and 2006, when Grameen Bank and its founder, Prof. Yunus, unexpectedly – and in my mind deservedly – shared the Nobel Peace Prize.  The fact that microfinance in most countries (and even in most states in India, the world’s largest market for microfinance) remained largely unaffected, and in fact continued to grow and contribute to poverty reduction, was rarely noted in the media or even at industry conferences.  There was a lot of soul-searching and hand-wringing, and perhaps a bit of panic.

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Money & Meaning: Manage What Matters

August 31, 2011

Steve Wright is Director of Grameen Foundation’s Social Performance Management Center. He is a keynote speaker for the upcoming SOCAP11 conference. This is the 2nd of a series of blog posts focusing on money and meaning (You may also want read Part 1). We’ve excerpted a section of the post below, with a link to the full post afterwards.

Maximize Impact

Markets : Capitalism :: Physics : Ideology

Markets have natural laws, like physics. Capitalism is an ideology. Ideologies can be changed.

All social enterprises want to know if they are producing positive social outcomes. They closely monitor their financial performance to maintain sustainability and closely monitor their social performance to see if they are achieving their mission of doing good. This blog focuses on the questions “Am I any good?” and “What is the good I am producing?”

There is no quantifiable unit of good

I have always found it strange that social performance is predominantly perceived as a measurement problem. The reality is that great social enterprises don’t focus on measuring what matters; their priority ismanaging what matters. Measurement is an artifact of good management. To a large extent the obsession with measurement is a problem unique to socially-funded entities (by that I mean organizations with capital provided at a rate of return between -100% and about 6%.) Because the money is not earning as much as it might otherwise, it needs additional justification to be invested. An investor/funder wants to ensure that their money is well spent, that it earns a valuable return that includes both money and social impact. The social impact or non-monetary component of the return on the investment comes in the form of social metrics or measurement.

However, as Kevin Jones, Co-Founder SoCap Conference, said to me recently, “Understanding the specific impact of a specific dollar invested is a pipe dream.” Even if it were possible to track a specific dollar’s impact, the overhead to do it would be significant and would subtract from the resources needed to achieve the impact. With this as a given, how do we build a marketplace when a marketplace requires comparability to understand relative value?

For a for-profit entity this is easy. An investor gives an entrepreneur a dollar and sometime later gets $1.25 and rejoices at the 25% return on investment (ROI). The math is easy because the input and the output are the same thing: money. In a social enterprise, money is an input but it is not an output. Money is important because it dictates sustainability but profit is not the purpose of the enterprise; social impact is. A massive amount of work has gone in to replicating this math to calculate an SROI (social return on investment). The work of REDF, Jed Emerson, Social Venture Technology Group and others have taught us a tremendous amount about what is possible. A primary lesson from this SROI work is that there is no monetary equivalent to a universalunit of good. Moreover, it is not rational to equate a specific social outcome to the amount of money that was spent to produce that outcome. We cannot use a financial balance sheet to compare the relative goodness of a homeless advocacy group in Brooklyn and a fair trade cooperative in Peru. The Beatles said it best: Money can’t buy you love.

>> Read Steve’s entire post at the SOCAP11 Blog.