This article shares how we at Givfunds view our own impact. For the sake of simplicity, we will use the Logic Model from the 80/20 impact measurement toolkit we created for our social enterprises.
*BOLDED to focus on and track
Simply put, we believe that our capital would help the social enterprise grow which would in turn result in greater impact created.
In the social impact world, funders often consider whether their funds (donated or invested) are given to the most effective organisations. Funders look at organisations who can create the greatest impact per unit dollar. However, the benefit of using low-cost loans is that it approaches the problem from a different angle, resulting in an impact multiplier because of the way loans are structured. By looking at the difference in opportunity costs between funders and social enterprises receiving the funds, we found a way to leverage on market inefficiencies to multiply impact.
Here, we go into some numbers. For many large foundations, their monies are invested in rather conservative investments. This frequently yields them a rather low 2-6% return per annum. This means that for every $100, they would earn $2-$6 per year – their opportunity cost of putting their money in the bank. On the other hand, social enterprises frequently borrow from money lenders at rates between 15-120% per annum. In such cases, this means them paying $15-$120 per year for every $100 borrowed – their opportunity cost of borrowing. We at Givfunds estimate an overall NPL rate of 2-5% and charge an average of 2% interest on our loans. Using conservative estimates, we see this:
Funds that would have otherwise earned foundations $6 per $100 per annum when loaned would result in an overall cost of $13 per annum. However, this beats the status quo of $15 per annum, thereby creating a 1.15x ($15/$13) impact multiplier – again, note that this uses the most conservative estimates. Using more reasonable estimates would yield a 2-5x impact multiplier due to the very nature of these loans without even considering the effectiveness of the social enterprises receiving the funds.
This benefit of loans creates an innate impact multiplier that helps multiply the effectiveness of social enterprises.