Food for All- Food for Thought

The readings this week helped analyze Impact Investment through the lens of benefits, tools, funds and stakeholders. At the end of my blog post two weeks ago, I was left with a question- Why do we still have a significant population who struggle from the very same problems the innovations promise to address?

The simple answer to this is government intervention at a grassroots level. But, this could be tricky. The readings from the report by Mckinsey & Co. “Bringing Social Impact Bonds to the US”- describes the SIB tool which allows a private investor partnership that  provide funds for for non-profits to scale up and the government pays if the program succeeds.

In line with the readings from this week, I want to discuss the impact of “Amma Unavagam” - a food subsidization program run by the Government of Tamil Nadu, India- a classic case of government intervention at the grassroots level to solve a social problem.

The Story:

On February 24th,2013 the Chief Minister of Tamil Nadu, Ms.Jayalalithaa started a new scheme called “Amma Unavagam” to provide affordable, clean and healthy food for the low-income communities of Tamil Nadu. Amma Unavagam is a chain of canteens across Tamil Nadu that helps serve this purpose. The canteens offer staple food items such as idlis (rice cakes), sambar rice (rice with lentils),curd rice etc at heavily subsidised prices. Idlis are sold at Re.1 each while sambar rice and curd rice cost Rs.5 and Rs.3 a plate respectively. And these are sold at portions. Each idli weighs 100 gms while the rice plates are of 350 gms each. Through this program, the government has successfully accomplished three goals:

a) No starvation in Tamil Nadu -Amma Unavagam sells its food at highly subsidized prices.  b) Cleanliness and Hygiene : It trains its employees to ensure cleanliness and hygiene at the canteens as workers wear aprons, caps and gloves while doing all the work.

c) Employments to Women: Women workers form self-help groups have been engaged to work. Each centre provides employment to twelve ladies to help supplement their family   income.

What makes these chain of canteens so successful ?

According to a conservative estimate of a Corporation official, the 200 restaurants serve two lakh peeople every day. If one were to take into account the possibility of one person coming to the restaurants more than once, the net figure is around 1.5 lakh, representing the economically weaker sections. This means the Amma Unavagams are already covering some 20 per cent of the Below Poverty Line population in Chennai – estimated at 6.5 lakh, or 10 per cent of the total city population. The nine other corporations across the State benefit another 50,000 persons.

        

Amma Unavagam does a great job at feeding lakhs of hungry people below the poverty line who are now better off and pocket their savings as a result of this initiative. A successful  government led initiative to solve not one but several social problems through a simple approach with maximum impact on it target population, Amma Unavagam stands tall among several other public sector innovations in the country. Innovations like these help us visualize the impact of unleashing the full potential of social enterprises through government intervention. Imagine the impact!

References:

http://www.thehindu.com/opinion/blogs/blog-laissez-faire/article5018479.ece

http://ammaunavagam.com/

http://www.thehindu.com/news/national/tamil-nadu/amma-unavagam-rs5-lakh-a-day-feeds-15-lakh/article5128261.ece

Social Impact Bonds: Predicting Failure

Increasingly, social impact bonds are garnering bipartisan support in the US Congress and undergoing consideration in many state governments (Cohen, 2014). By enlisting private companies to supply capital for nonprofits to scale up operations, government stakeholders can cut costs on their current payout to remedial programs, and those private companies can profit from payment from those governmental savings. At the same time, the lives of the constituents facing certain issues in the US will improve due to the nonprofits ability to increase impact with the given capital. In essence, social impact bonds are creating an incentive for private companies to get involved in social impact.

Despite this incentive structure, it proves important to note that, although the outcome of “ improved lives”  as a consequence of following this model may seem attractive, it is highly likely that some of these ventures will fail. The success of a certain social impact bond is measured by specific outcome criteria (Callanan et al, 2012). Thus, failure of a nonprofit would reflect a failure to meet these criteria. Still, the question that remains: How commonly do we think failure will occur?

Another widely researched concept (albeit relatively more simplistic) that pays stakeholders positively for positive outcomes is the value-added measures applied to evaluating teachers. Essentially, the better students perform on assessments, the more rewards, in the forms of tenure and increased pay, a teacher is eligible to receive from the employer (David, 2010). This type of evaluation method creates a an incentive for teachers to help students improve beyond a moral compass. The result is mixed (David, 2010). Students do not necessarily improve their scores and teachers do not necessarily have a greater impact on students, despite the incentive structure created by the value-added evaluation system. As social impact bond policies come to fruition, it will be important to analyze how well its incentive structure keeps certain ventures financially viable. Hopefully, the result it better than the value-added program.


References:

Cohen, R. (2014, July 25). Social Impact Bonds: Phantom of the Nonprofit Sector| Nonprofit Quarterly. Retrieved September 27, 2016, from https://nonprofitquarterly.org/2014/07/25/social-impact-bonds-phantom-of-the-nonprofit-sector/

David, J. (2010). What Research Says About using Value-Added Measures to Evaluate Teachers. Retrieved September 27, 2016, from http://www.ascd.org/publications/        educational_leadership/may10/vol67/num08/Using_Value-               

Added_Measures_to_Evaluate_Teachers.aspx
From Potential to Action: Bringing Social Impact Bonds to the US (Callanan, et. al., May 2012)

Social Impact Bonds in Europe

This week's articles focused on different ways to fund social ventures, with an emphasis on Social Impact Bonds (SIB). Non-profits don't always have the resources available to pursue a project; hence, SIB is an innovative approach in mobilizing finance for social impact. The advantage of SIB is that it shifts the financial risk away from the government and that it is based on performance and outcome.

SIBs are increasingly popular in Europe. A couple of weeks ago, the Enschede local authority, in the eastern Netherlands, has established a SIB to decrease unemployment. The Councillor of economy and employment states that SIB is a "creative way" to resolve unemployment. More specifically, the bond will "aim to match job seekers in Enschede with German employers" focusing on 7000 households. (1) How does it work? The Start Foundation and ABN Amro teamed up to lend Enschede $1.2 million. If unemployment decreases, the investors (Start Foundation and ABN Amro) will be reimbursed with interest. Indeed, Enschede will have less unemployment benefits to give and will have the opportunity to re-orient that money into reimbursing the investors. In turn, the investors are expected to gain 4% to 8% in interest. (2) This example shows that there is an incentive for every "actor" in this "transaction" to improve the problem of high unemployment.

Back in August 2014, the European Commission states that it "promised to facilitate the exchange of experiences between Member States with social impact bonds. The European Parliament has called for greater use of innovative financing for social benefit and for more specific proposals from the European Commission". (3) It will be interesting to look at the impact of SIBs not only at the local or national level, but also at the European level.

(1) http://www.publicfinanceinternational.org/news/2016/09/worlds-first-cross-border-social-impact-bond-launched-netherlands
(2) http://qz.com/779861/social-impact-bonds-an-investment-fund-is-trying-an-experimental-market-solution-to-fill-jobs-in-germany/
(3)http://www.europarl.europa.eu/EPRS/538223-Social-impact-bonds-FINAL.pdf

Impact assessment for Healthcare Social Innovations

A topic I have grappled with many years now, impact investing in social innovations still remains as nebulous a field as ever. Even though the pace of social innovations is on the rise, issues around determining their potential impact still remain a bone of contention between the funders and the social enterprises.

Investors on one hand face difficulties in identifying bench-marking metrics and comparative analysis literature about the impact achieved, while entrepreneurs face challenges around reporting and translating impact data in a credible format. Having worked as a healthcare consultant, I often found myself in situations where I wondered how could I effectively harness the potential of the social innovation for its expansion in the under-served regions. Would impact be determined in terms of the healthcare trifecta of access, cost and quality or any other metrics need to be accounted for a comprehensive evaluation. As the impact is subjective and can be attributed to more than one factors, new approaches are thus being devised in order to make the impact assessment more nuanced. An article that I found in the Stanford Social Innovation Review ‘Setting the Stage to Measure Impact in Health’ was particularly enlightening as it focused on the development of standardized definitions for common measures of performance tracked by healthcare organizations serving low-income communities. The framework demonstrates how the delivery of affordable care services to the poor can be attributed to the measurement of social, environmental and financial performance of the investment. In order to test the soundness of the framework, I tried to extrapolate the learnings from the framework onto a host of telemedicine service innovations, a field which is poised to be disruptive in the way care is delivered remotely. Aiming to critically evaluate along the proposed metrics, the points are enumerated herein –

1.     Choose from within the catalog of metrics - Multiple metrics from reduction of travel time, increase in quality of life to average length of stay in healthcare facilities are metrics that can selected from a larger cohort as they are the most germane to the services provided.

2.     Adapt metrics to specific healthcare activities -  Depending on whether it is a product company or an e-health service provider, the metrics must be attuned to the type of activities it is engaged in.

3.     Use the metrics to measure outputs and, ultimately, outcomes - Depending on the organization and the investor, the metrics must be correlated to health care outcomes so as to bolster the case for health economic benefits for a potentially larger patient base.

4.     Use metrics to help identify successful health organizations - Determining comparable key performance indicators from multiple sources such as WHO and World Bank literature will help demonstrate impact and compare performance to similar organizations. Standardized e-health organization performance metrics can help increase the pace of investments in this burgeoning field and multiple social impact.

Thus, the soundness of the framework is indicative that they are indeed a revolutionary way of judging the socio-economic impact of the investments in the healthcare sector, which would come to the aid of the various stakeholders in the healthcare industry. Such developments are indeed going to be game changers in the way funds are channelized to serve the healthcare needs of the largely underserved populace.

References:

https://ssir.org/articles/entry/setting_the_stage_to_measure_impact_in_health

http://www.ifc.org/wps/wcm/connect/b10f4080498391e2865cd6336b93d75f/IFC_Support2Health_WEB.pdf?MOD=AJPERES&CACHEID=b10f4080498391e2865cd6336b93d75f

Traditional Financing Mechanisms and Social Enterprises

“If you think of charitable donations as a form of investment, and if an appropriate legal structure is created, then you have, by definition, a new class of investors and a new type of return.” This powerful line comes from this week’s reading, titled “A New Approach to Funding Social Enterprises,” and speaks to the vast gap in financing opportunities and options when we compare social enterprises and impact-focus organizations and those with a profit-driven bottom line. Indeed, as the social enterprise world blends mission-driven and profit-driven ideas, structures, and organizations, it becomes more and more apparent that financing, philanthropy, and other avenues for socially-inclined originations to raise capital are in need of a suite of innovative forms to better support organizations in their mission to impact end-users for the greater good.

While some advances in this area transpose more traditional investment models to the social enterprise space, as in the case of Citibank’s investment in KickStart International, other approaches have the potential to redefine how financing works for non-profits and social enterprises. Among the options covered this week, I was most attracted to the Bill and Melinda Gates Foundation’s shift to guaranteeing loans for organizations in lieu of traditional philanthropic grantmaking. As the article notes, philanthropy and government have long determined the financing and fundraising space for non-profits and, often, for social enterprises, too. The result is both a reliance on traditional grantmaking by organizations as well as a barrier to entry for many new or non-traditional enterprises that may blend profit and impact together in their work.

By guaranteeing loans for these kinds of organizations, the Bill and Melinda Gates Foundation is, in many ways, freeing these kinds of organizations from being eternally beholden to government and philanthropy, or, if they’re lucky, individual donors. Instead, loan guarantees open the potential options to include financing options that have traditionally been reserved for single bottom line companies. With an ability to finance, social enterprises, who have traditionally had difficulty demonstrating the credentials necessary for traditional financing, have the potential to borrow from the market. This could have a profound effect on the amount of capital able to be acquired and the speed at which a successful organization can scale up and expand its offerings.

That said, a significant caveat still remains, namely the basic infrastructure and indicators able to distinguish a good social enterprise investment opportunity from a bad social enterprise investment opportunity. While the authors do acknowledge this shortcoming and provide some consolation to the reader that the Rockefeller Foundation has begun to fund work in this area, it remains a considerable lift for both the social enterprise space and the traditional financing communities. When overcome, however, mechanisms like loan guarantees that open private financing options for social enterprises hold considerable promise in their ability to ignite a wave of innovation and rapid expansion for social enterprises and non-profit organizations.

That's a pass on SIBs

I’ll be honest, I struggled with this week’s readings, mostly because finance makes my eyes glaze over. If Margot Robbie hadn’t been explaining sub plots in The Big Short, I wouldn’t have made it through the movie. Fact.

Back to the blog, however, with the theme being the increasingly vast options of financing available to social enterprises, Social Impact Bonds (SIBs), were clearly the innovation of the hour. These bonds (which fun fact courtesy the Mckinsey report, aren’t actually even bonds) work to help social enterprises through the financial issues faced in scaling up. Think of it this way, you have an enterprise, its proven to work at a small scale, now you want to scale up using the infrastructure of the Government, but the Government isn’t sure whether that would translate to success. Enter, organizations that are willing to take that risk. They invest with the expectation that in the event of success, they will be compensated by the government according to pre-negotiated terms. In the event of a loss however, they get nothing.

This makes me uneasy.

Sure, in theory SIBs sound like the dream. The Government gets to allocate tax payer money to focused initiatives and projects that have proven to be successful. Less waste, more impact, zero risk. With such favorable odds, why aren’t these SIBs more prolific? I would say it’s because of the skewed burden of risk on the investing organization. Since the risk is entirely on the organization, it makes sense for them to invest on those enterprises which are most soundly proven successful and are hence low risk. What about the promising enterprises that haven’t been able to “prove” themselves, because of, say, some teething issues or other development challenges? Are these enterprises just left out to dry in the SIB model?

While the McKinsey report does suggest that social entrepreneurs are getting cleverer in packaging their ventures in the best way that would appeal to investors, I, being my chronic pessimist self, can’t help but think what if they can’t but their idea is still promising. Isn’t it lazy then on the Government’s part to ignore these enterprises entirely.

The second problem of course is that defining the parameters of these bonds is cumbersome. When multiple parties are involved and multiple moving parts, things can get complicated real fast. This[i] article draws a parallel for prison recidivism and asks “What is reoffending: the same offense? A lesser one? Where? For how long? Who decides? Who adjudicates if there’s a disagreement among the parties? What happens when something unanticipated happens? What if the main parties go out of business?

In conclusion, I’ll take the idea of SIBs with a pinch of salt. In an already tedious, often bureaucratic process of government provision of services, is adding the complexity of SIBs, given their tendency to exclude potential promising ventures, really the innovation of the hour?

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[i] http://www.huffingtonpost.com/clara-miller/social-impact-bonds-slipp_b_7170474.html

Performance Measurement: The Social Enterprise Dilemma

‘A Framework for Measuring the Scale and Scope of Social Performance’ discusses the dilemma of measuring the impact of social enterprises. Ebrahim and Rangan claim: “every organization should at least measure and report on its activities and outputs, as these results are largely within its control.” However, this is obviously the easy part. Unlike conventional for-profit business ventures, social enterprises can not solely look into their cash flows and generate a measure of the total profit made.

The link between output and outcome is not easy to establish for a lot of social ventures. The article highlights the example of Aravind Eye Hospital, where this is a relatively simple task. In a nutshell, the amount of corrective surgeries performed efficiently will translate to more patients with better vision. However, this process gets complicated when a social enterprise is tackling a wide variety of issues. For instance, how does a school measure its impact? How does one quantify the knowledge being imparted to students? One might turn to analyze students’ grades; but it is my personal belief that simply looking at grades does not accurately determine the true value of education or the success of a school. Students’ aptitudes vary on a case-to-case basis. Measuring the impact a school is having on its students depends on a variety of factors such as student enrolment, student retention, the overall behavioral change in a student’s beliefs. Some of these changes are quantifiable, some are not.

The article points out scale and scope as important determinants of measuring impact. The greater these two metrics are, the harder and more complex it becomes to measure impact. This is primarily why the articles states that “assessing impact requires a level of research expertise, commitment to longitudinal study, and allocation of resources that are typically beyond the capabilities of operating organizations and sometimes even their funders.” This is why a growing approach to measuring performance of social enterprises involves the organizations clearly delineating their operational mission, scale and scope. This helps the organization and funders to be on the same page since day one and set clear-cut objectives according the nature of the work being carried out, instead of a one-size-fits-all approach.

In my opinion, while this method of measuring performance sounds feasible on paper, it places a significant amount of power in the hands of the social enterprise – the entity being evaluated. In many cases, the grantees are not aware of the ground realities of the processes being carried out in the field. There can be multiple ways in which Task X could be performed; and when left to the whim of the social enterprise, it may or may not be performed in the optimal and least costly manner. Hailing from a developing country, I have seen many social enterprises pocket excess cash by bloating their budgets. The method pointed out by the article may not work if an organization is bent on embezzlement. This leads to the question: what exactly is the most effective way of judging impact? While the article’s approach may be a step in determining the best possible approach, it is definitely not the most effective way of measuring performance and leaves room for improvement.