While some microfinance networks have begun to create funds to attract social investors, the most active growth of microfinance investment funds is in the non-network sector. Non-network funds created by companies such as Gray Ghost, Blue Orchard, and Developing World Markets comprise the bulk of the 40 funds created in the last three years.*

Generally, these funds target an institutional market - high net-worth individuals, foundations, and pension plans - seeking strong financial returns. A subset of these fund managers is socially motivated and seeks equally strong social returns. Many of these funds have been brought to market by professional investment managers in response to increasing demand for microfinance investments.

Socially conscious institutional investors interested in a professionally managed fund offering strong social and financial returns should understand that all MFIs, and hence investments, are not all the same. Until recently, assessing the social performance of a MFI, or investee, has been difficult; the best available gauges of successful social outreach have been proxies such as average loan size or number of women reached. In lieu of solid data, anecdotal evidence has been the selling point of the microfinance sector, suggesting that the success of one borrower is indicative of many or all borrowers. With increased investor interest in the success (or failure) of targeting the poor and transforming their lives, investors are looking for greater transparency of the social track records of MFIs.

To respond to this need, Grameen Foundation, with support from CGAP and Ford Foundation, has commissioned the creation of the Progress out of Poverty Index^TM. This simple ten-question poverty scorecard allows MFIs to create poverty profiles of their clients. Fund managers can now begin to request PPI data from those MFIs using the tool, and can urge their investees to consider implementing it.

Questions to Ask

Institutional investors with a strong interest in the social outcomes associated with their investments can ask:

• Are investment dollars reaching the poor and very poor?
• At the portfolio level, how many clients are moving out of poverty?
• How long does it take for MFIs, on average, to attain for their clients sustained movement above the poverty line?

As the use of the PPI becomes more widespread and fund managers begin to incorporate the data into their due diligence processes, institutional investors will have a better understanding of the number of poor clients being reached by the investment portfolio, and how many of those clients are moving out of poverty. Long-term PPI data may also help institutional social investors set expectations about the time horizon needed to help microfinance clients work their way out of poverty.

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Read more about the importance of quantifying social impact with the same due diligence placed on financial returns.

Due Diligence: Social Investors Want Impact and Quantifiable Returns

*Foreign Capital in Microfinance: Balancing Social and Financial Returns, CGAP, February 2008