[kictanet] Why Social Impact Investing Is A Crock

[Agosta Liko]

http://www.fastcompany.com/1761606/why-social-impact-investing-is-a-crock

Why Social Impact Investing Is A Crock
By Anya Kamenetz <http://www.fastcompany.com/user/105230>

Over the last decade the world of do-gooding has seemingly been taken over
by MBAs. Social entrepreneurship, a field encompassing both mission-driven
businesses and entrepreneurial nonprofits, professes to bring the
efficiency, rigor, and cold, hard metrics of business to the most important
causes on the planet. Does it really?

Not so much, says Dean Karlan, author of the recent book *More Than Good
Intentions*. "The social entrepreneurship world is in a weird spot, to be
honest with you. It’s a world full of rhetoric about impact investing, yet I
have very rarely seen an investor actually take that seriously. When you
look at the actual analysis it lacks rigor." He distinguishes between the
type of scientific research done by his lab, *Innovations for Poverty Action
* [1], with trials complete with control groups, and the type of data
collection done in the vast majority of the nonprofit world, which is
nothing more than a "monitoring exercise."

"Take microcredit. What they do is they track how many borrowers, what their
repayment was, and whether the businesses grew over time. That is not
telling you your impact at all because you don’t know what would have
happened if you didn’t lend."

Though he doesn't single them out by name, Karlan's critique points to
behemoths such as the Bill and Melinda Gates Foundation, the largest
grantmaking institution in the U.S. "A lot of money comes from groups that
have used quantitative tools in the dotcom world, and they push toward
collecting data that doesn’t necessarily answer the question. Now you’ve
burdened your organization with data collection so you can feel rigorous."
At the same time, he says, the cost of doing the kind of randomized,
controlled impact studies that his organization conducts can often be
prohibitive, particularly for social enterprises that are tacking for growth
and "sustainability" (meaning profitability). "Put on your investor hat. If
you want to put a million dollars into a business, are you going to put 33%
of that into an impact study? That blows up your return. As a result, I’ve
seen very few businesses that are being pushed forward as social
entrepreneurship that undergo simultaneous rigorous evaluation."

Still, Karlan does see some bright spots on the horizon as his work and that
of Esther Duflo's Poverty Action Lab--which also does scientific assessments
of poverty interventions--grows in popular acclaim. "There’s serious
excitement and enthusiasm about impact evaulation among the biggies like
Gates, Hewlett, Ford, the World Bank. It’s not unanimous--we still get
pushback and some are more enthused than others. But many are starting to
use impact evaluation to figure out how we should spend the next $100
billion over the next 10 years."

*Read more about Esther Duflo's assessment of social impact in this
month's Life
in Beta column [2]*.
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <https://lists.kictanet.or.ke/pipermail/kictanet/attachments/20110817/9f0e475d/attachment.htm>