Our Method for Calculating Social Return

We use a number of indicators to calculate social return. Of the 16 sub-indicators, four look directly at the investment fund itself, while the remaining 12 look at the portfolio of the microfinance institutions (MFIs) in which it invests or has targeted.

In most cases, Gray Ghost arrives at scores for each indicator by gleaning information about their investment stategies and portfolios directly from funds. Other scoring sources, such as the MicroBanking Bulletin and the MIX Market, are also accessed for relative data. Periodically, Gray Ghost calculates social return by reviewing MFI performance with fund managers, as is the case when it uses the "innovation" indicator as a scoring instrument.

The indicators are defined below:

Innovation

The extent to which a financial institution is organized to dynamically and continuously identify and serve the needs of clients. Gray Ghost believes that MFIs and funds that are actively engaged in assessing and responding to client needs can best maximize social value.

  • New products
  • Market research
  • Non-credit products
  • New products (fund)

Scale

The actual and potential scale of an MFI's operations are relative to the need in its market. Larger MFIs that are well focused on their clients' needs will have a greater impact on reducing poverty and enhancing economic opportunity. However, smaller MFIs can enhance their own reach by linking up with mainstream institutions. This relationship allows them to leverage the balance sheets and product capabilities of other institutions in order to provide a wider range and greater volume of financial services.

  • Absolute size
  • Market share
  • Mainstream collaborations

Outreach

The extent to which financial services are placed in the larger context of poverty alleviation, both through effective targeting and linkages to complementary interventions.

  • Agricultural clients
  • Coordinated services
  • Initial loan / GDP
  • New market

Financing

The extent to which an MFI/fund is developing a strong financial base of private investors, equity, local capital as opposed to cross-border funding, and public deposits.

  • Private capital
  • Local capital
  • Equity
  • Employee retention

Gray Ghost prepares an initial estimate of social value at the time an investment is first analyzed. This is then updated on a semi-annual basis and more carefully reviewed on an annual basis to reflect changing portfolios and strategies.

For each of the four dimensions, the subsidiary indicators are used to generate a composite score ranging from 1-10. This score is then used to award basis points. Gray Ghost allocates 150 basis points to each dimension. If a fund receives a perfect score in each, it receives a total of 600 basis points of social return.