How should impact investors use poverty data? This was the topic of a panel discussion I participated in recently at the American Evaluation Association’s (AEA) Annual Conference. Moderated by Veronica Olazabal of the Rockefeller Foundation, other panelists included Julie Peachey from Innovations for Poverty Action and Heather Esper from the William Davidson Institute. Together, we looked at various tools for measuring poverty and, more importantly, what the data tells us about the performance of social investments.
The Role of Poverty Data in Impact Investing
We started by recognizing that the reason we can have this conversation today is that we already have excellent tools for measuring poverty, including the Poverty Probability Index (PPI) and FINCA’s Mission Monitor. Both instruments are rooted in strong underlying data—national household surveys in the case of PPI, and borrower surveys in the case of the Mission Monitor. Each takes just a few minutes to administer, making the collection of poverty data relatively easy and inexpensive.
This left us with a much harder question: Why should we measure poverty and what should we do with the information? In terms of the panel discussion, we debated how poverty data can “empower” impact investors. Of course, knowledge itself is power, but only if you use it. So, the question became, how can impact investors actually use poverty data?
Using Poverty Data to Understand Outreach
The clear answer so far is that poverty data tells us who we are reaching with our investments. A national poverty line shows how deep our services are penetrating, considering the relative standard of living in each country. Using the international poverty line—$1.90 a day (adjusted for exchange rate differences)—we can compare outreach across different countries. Together, these results tell us whether a customer is poor in her country, and how poor she is relative to people in the rest of the world.
This information empowers investors to make informed choices about where to deploy their capital and how to temper the financial expectations against social goals. If an organization excels at reaching the poor, for example, impact investors might adopt a more patient attitude toward profitability. Mixing investor capital with philanthropic giving can also help. A “blended finance” approach can mitigate the risk of an investment, foster a new business model, or stimulate an emerging market. Or it can just buy time to reach the scale and margins needed for profitability. This kind of donor funding, strongly driven by the desire to serve the poor, has been critical throughout FINCA’s history. Donations continue to play an important role in helping us improve our services.
Put simply, if impact investing is going to generate social and financial returns, then we need data that speaks to both sides of this claim. On its own, poverty data doesn’t give us the full picture about the impact of our services, but it does tell us who we are reaching, which is the starting point.