A recent Economist article highlights the questions posed by the development community around microfinance. The article examines how microloans went “from being the silver bullet to end poverty, to the poor man’s snare, to largely ignored.” Offering small loans may increase business investment, the article postulates, but has a limited effect on the fortunes of people living in poverty. In a constrained market, microfinance organizations strive to become big and efficient to succeed.
But if succeeding means becoming big and efficient, are we dropping the ball on actually creating the social outcomes we set out to achieve? This age-old question applies to not only microfinance, but all social ventures. This fall, our organization, Alfanar, tried to answer it in light of our venture philanthropy work. Alfanar invests in social enterprises serving marginalized communities in Egypt and Lebanon, providing them with financial and non-financial support to help measure, scale, and sustain their impact.
Together with two of our investees, Future Eve Foundation from Egypt (FEF) and Women’s Program Association from Lebanon (WPA), we embarked on a study mission to visit two of the most established and impactful organizations in the world: BRAC and Grameen Bank. Our goal was to expose our collective minds to different, proven ways of fighting poverty and social marginalization around the world, then contextualize and integrate them into our own work. In the process, we uncovered a whole new set of questions to help guide our internal scaling debate.
Best Outcome vs. Greatest Number
When working with social enterprises on business planning, we often experience a productive tension around the question of scale and the prospect of packaging an organization’s services into a replicable module. Many of the social enterprises we support have developed their programs over years of gradual testing and development; they’re proud of every single component and don’t want to let anything go.
As we urge them to be ambitious, we experience our own internal conflict about what that means. Do we want to be ambitious about the transformational impact we have on each person or about the number of people we reach?
On one hand of the spectrum, one can imagine investing an endless amount of highly customized resources in a single person until their life changes completely, and they reach the highest possible levels of education and health. On the other hand, one can imagine investing in an extremely standardized product or service for a very large number of people, with limited ability to assess how the multiple dimensions of their lives progress as a result of that service. Somewhere in-between is where most grassroots organizations express they’d like to be.
To us, visiting BRAC especially illustrated this tension. When BRAC first started out, it implemented holistic community development programs addressing multiple dimensions of poverty within the same group of people. Yet the organization quickly discovered that to reach every household in Bangladesh, it was necessary to focus on one product or service at a time. Today, its microfinance program has reached millions of households across Bangladesh—an astonishing number to our investees, who strive to reach tens of thousands. Yet limited information is available on how the socioeconomic indicators of each borrower’s household have developed, beyond financial indicators. Health and education programs are available, yet they’re run largely in parallel and are not packaged with the microfinance program. Donor priorities, which often focus on one sector at a time, have also driven this less-integrated approach.
As Bangladesh moves closer to becoming a middle-income country, BRAC is re-evaluating its approach. With the country’s gross domestic product increasing, and donor funding decreasing, BRAC’s research and evaluation team is circling back to a more-integrated approach. After reaching large numbers of people, the next step could be ensuring that each household meets the nation’s Sustainable Development Goals.
We are faced with a similar situation in Arab countries such as Lebanon and Egypt—a completely different part of the world, yet with striking parallels. Shifts in national and regional priorities, accompanied by decreasing donor funding, offer both a challenge and a golden opportunity for social entrepreneurs. The challenge is securing revenue for grassroots organizations that up until now have been largely donor driven. The opportunity is creating self-sufficient social enterprises that have the financial independence to determine their own agendas. This will result in more robust and long-lasting social ventures, more closely interlinked with the growing economy.
The products and services offered by FEF and WPA are more similar to the holistic community development programming BRAC started out with more than 40 years ago. Both offer microloan products to women, but packages them with a host of training and awareness services, including financial literacy and vocational training, and awareness-building around issues like maternal child health, sexual harassment, nutrition, health, and hygiene. Rather than evaluate the impact of their microfinance programs solely on financial indicators, they track household indicators and behavioral indicators related to education, health, and the living environment.
After returning from our study mission, we found ourselves asking: Is it possible to scale this way? Do we need to measure socioeconomic indicators for each household, or is it enough to track operational metrics like loan repayment? We think the answers lie somewhere in-between.
What we’ve come to realize is that the scaling debate is not a yes-or-no question. It’s not a matter of “to scale or not to scale,” but “how much.” What will we let go of when working to create tightly packaged, replicable, and scalable interventions? And what are the non-negotiables we will hold on to, even if it means less scalability?
As many like-minded organizations have come to realize, it is impossible to find a one-size-fits-all formula for scaling impact. Research suggests that diverging from the formula pays. Finding a middle ground for FEF and WPA will likely entail identifying the most effective components of their multi-pronged offerings and focusing on these in expanding their reach. A critical piece is determining the needs and demands of the women and families we are serving. How can they become more competitive in today’s marketplace? If they can pay back all their loans, but can’t read or write, they have limited ability to survive unexpected events, risks, and changes in their communities.
In an increasingly unpredictable global environment, it’s important for social enterprises both to be nimble—to move fast and serve many—and to leave an imprint wherever they go that the next incoming tide won’t reverse. In rural Egypt and in refugee camps in Beirut, a woman’s loan repayment doesn’t necessarily reflect her ability to enroll her children in school and feed them healthy food. Until we can ensure that microfinancing and other services we offer (the means to an end) are resulting in the desired end—and until we can measure and prove it—we have not accomplished our mission.
We learned a lot from our study mission, and returned from our visits more informed and inspired—not to mention humbled by the results and the generosity of our hosts—than ever. We also returned with more determination than ever—to listen to the people we serve and do things their way.