Social Impact vs. Profit – or are we measuring the wrong thing?

by | Aug 2, 2011 | Uncategorized |

A few nights ago, I sat on the edge of West Lake in Hanoi, sipping delightful Vietnamese iced coffee with condensed milk with two friends from Bloom Microventures.
It is wonderful to hear their stories of how they are combining tourism with microfinance to impact the lives of women in rural parts of Vietnam. We talk about their borrowers and how one of them has just made a huge profit from pigs and decided to pay the loan back 9 months early! And other borrowers who had chickens die or be killed by motorcycles, while others with chickens as well are successful. There are also stories of borrowers who spend the loan on a 5-star animal enclosure, but run out of money to actually buy animals! We wonder aloud about how the inflation rate of 14.5% in Vietnam will impact their borrowers. And the fragility of tiny development gains in the face of the coming tropical storm.

But as the caffeine kicks in we move into other things like the joys and struggles of being a start-up business trying to balance the core value of social impact, but also ensuring business survival. We talked about the language we use to talk about this – how we have the notion that there is a trade-off between profit and social impact. We talked too of how it is partly to do with how we measure success and that in society as a whole we tend to measure success almost purely in financial terms – that in the end it tends to end up in some sort of quantifiable, numerical value. Social impact is at the expense of profit and profit is at the expense of social impact. We tend to view the two things a mutually exclusive and not integrated.

But what if we begin to use a different measure of success? Does this help rid ourselves of the perceived tension between social impact and profit? Measuring success in financial terms is the easy way out and the normal way to do things, but it is reductionistic and results in the tension between profit and any other end results. Business sustainability is important, necessary and thus having more income than expenditure is obviously crucial. But social impact happens no matter what we do – we impact life around us, simply by living, breathing, and acting.

I wonder if we have forgotten that no matter what we do, we have social impact. No matter what we do, unless perhaps you are a hermit where business is unlikely to be booming and shareholders a bit more manageable. We end up viewing social impact and profit as trade offs when we view them as separate things sitting on a continuum, but life isn’t really lived that way – we are humans after all and thus these things interact with each other. Perhaps we need to complicate ourselves further so that we can deal with the complexities of life.

I am for social impact and for profit, but frankly I more interested in quality of life for everyone and for the environment in which we live. Nothing is easy as we try to move the focus away from solely profit; it will require us to live in more ambiguity, complexity, and become more adaptable – in short, we need to move away from formulas and towards adaptable practical wisdom that is comfortable with questions rather than answers. I’m excited – anyone else?

1 Comment

  1. Catherine Chong

    Hi Amos, great post!

    Is it fair to say that the lending rate would reveal how each MFI view profitability. Some of them do charge a much higher rate than a retail banking would (some of them as high as a loan shark’s rate). Sure, besides forgoing collateral, the main value of a ‘good’ MFI may be that it provides the borrowers whom are often ‘unbanked’ with savings facility, basic financial skills, and even business training. Most of all, the ‘intimate’ monitoring that become a form of governance; helping the borrowers to manage and better than business venture through pressure and motivation. Such services have to be accounted for, hence MFIs have to calculate their financial performance for business longevity case.

    The different is I suppose, investors in MFIs are often coming from SRIs whom have as much ethical concern as profitability in mind. Often, these investors are more willing to extend the payback period as they understand that they are not in the business to drive quick bucks. Whether they represent all the investors in MFIs, I do not know. I suspect not.

    Back on the pressure and motivation mechanism in MF, I would like to imagine that the successful MFIs are those that have got the balance right. Would be interesting to read the research in this topic.

    Reply

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