Evaluating Social Impact

(As posted on YourStory.in)

For people engaged in the social entrepreneurship space, one of the most difficult questions is how to measure the positive social impact you make. How do you know you’re doing net social good?

What we typically do is assume that our product has intrinsic positive social value and so simply measure how many people have used our product or service. Then we make grand statements like ‘We have positively touched a million lives’. For some products this might be all it takes. Take d.light, for instance, a solar alternative to kerosene lamps that is cheaper, brighter and healthier. A simple count of product sales would be a pretty good indicator. For many other products and services though it is far more ambiguous. Microfinance, pharmaceuticals, health services, education. All of these have great potential for good but also for abuse, misuse or mistakes. Each instance of use is not always a net positive; a borrower who drinks away a loan, a person who commits suicide with an overdose of painkiler, a person who gets wrong medical advice resulting in a worsening of their condition. In some cases, the net positive impact is highly debated. Are people really better off if they took a loan? If they underwent a particular treatment? Took a particular course?

Driving more productive interactions

Very excited that the film Shakti Pirakkudhu (Shakti Rising) that has been in the works for three years now is finally done - this week! The goal of this film is to seed different thinking among the rural poor and raise their aspirations. We have a bunch of by invitation pre-release screenings planned around the country (India) in October and will post a schedule here soon. In the United States, the film will have its premier screening at SALTAF (South Asian Theater and Literary Arts Festival) on Nov 13 at the Smithsonian in Washington, DC.

Below is the synopsis and trailer but you can learn more from the website:
India www.shaktipirakkudhu.in USA www.shaktirising.in



Synopsis
Sundari is a young mother of two in a small village in South India. She has an opportunity to get a microfinance loan and wants to use it to start a business. Her husband is scornful of her ambitions - she has never been more than a housewife. As she struggles to find her feet in a trade, the village erupts into a flurry of politics with the arrival of a woman from the city looking to start a garment factory in the area. This is a story of a village woman trying to define what success means to her in the context of an expanding world view, and of a family struggling to find their equation at the crossroads of what is and what could be.

Microfinance, money flow and social impact

The traditional thinking in microfinance is that it is a way to help people extricate themselves from the clutches of local moneylenders who charge exorbitant interest rates. As microfinance institutions, we believe, that by charging less we are doing great social service. Typically, when academics study the impact of microfinance, they look at people who have received microfinance compared to people who haven’t in order to see who is better off across various dimensions. Evidence suggests that even if individual borrowers are not actually making profits that exceed the interest charges, they might do better on other dimensions that relate to patterns of consumptions. Access to a lump sum of money at once, for instance, allows borrowers to afford goods and services they would otherwise not be able to that give them a better quality of life. However, if we really want to understand the social impact, looking at how some individuals compare to others is not sufficient. Rather we need to understand the flow of money more systemically. Here’s why:

In my view the goal is to seed systemic change. Which means the system as a whole should thrive and not just select individuals within it. If we take a village that has its own local economic ecosystem along with some bilateral trade links to the outside world and try to unravel the impact of a loan, it is not so simple. As a microfinance institution we lend urban acquired money into the village, but then we take back more than we lend in the form of interest. The money we take back goes back to the village in part as salaries to the people we employ there. The rest goes to other stuff in urban areas, maybe out to shareholders who will spend part of it in another country (like me for example - most of my money seems to go to Lufthansa). The local moneylender, on the other hand, may charge a higher interest rate, but being local will probably spend most of that income in the village supporting the overall village economy. So potentially, local lending at higher rates could be more beneficial to the village if the money is in turn spent in the village, compared to lower rates where the money leaves the village. So the impact of microfinance on the village has a lot to do with the dynamics of money flow and not just what happens to the borrower who took the loan. (See also my related post, ’Where does the money go’).