FinDev Blog

How Do You Know If You're Making an Impact? First, Get Better Data

As impact investors increasingly seek deeper impact measurement and reporting, MFIs need to up their game
Guatemalan woman leaning on a loom with green and blue textiles.

When Muhammad Yunus piloted a group microlending methodology with rural women in Bangladesh in 1976, his intention was clear: to lift people out of poverty. More than five decades later, we must return to that intention and ask ourselves: has microfinance moved the needle on reducing poverty levels? 

Microfinance has outpaced all other sectors in attracting impact capital over the years. Today, the sector is estimated at $178.84 billion worldwide and projected to reach $496.90 billion by 2030. As the sector matures, investors and other stakeholders are increasingly demanding deeper impact measurement and reporting. 

Microfinance institutions (MFIs) are now called to move beyond short-term quantitative outputs, such as the number of clients served, to data-backed outcomes that measure if and how their products and services drive positive changes Twitter logo in their clients’ businesses, lives, families and communities. Because financial inclusion is considered a key enabler to improve economic and social wellbeing and prosperity, MFIs must measure progress in key areas such as clients’ business growth and resilience, income and savings, quality of life including investment in health and education, and economic empowerment, resources and agency.                          

Getting the right data to measure impact          

At Deetken Impact, we have invested nearly $50 million in financial inclusion in Latin America and the Caribbean (LAC) in the last decade. In working closely with numerous leading MFIs, our team has identified the importance of improving impact measurement processes. As we look to our MFI investees to provide data and analysis on impact outcomes and help us to enhance our own impact measurement and reporting processes, these are the questions that guide our work:

Pie graph showing Deetken Impact's approach to Impact Measurement, with the questions Who, What, How, When, Why

Key components of an impact measurement system: Questions to consider as MFIs define their impact strategy, prepare to collect and analyze the right data, and utilize that data to inform decision making. 

MFIs are uniquely positioned to deepen impact measurement because their very business model is based on extensive data collection and cultivating client relationships. Twitter logo They can capitalize on existing tools and processes such as credit applications and renewals, satisfaction surveys, and meetings with credit advisors to expand data collection efficiently. Data management is equally as important, and MFIs must ensure client data is easy to access, of high quality and systematized to facilitate deeper analysis and monitoring to identify changes over time. 

Data collection and management were an integral component of the Ilu Women’s Empowerment Program, in which Deetken Impact and Pro Mujer, with the support of Zigla Consulting, led technical assistance projects with MFIs in the Ilu Fund portfolio to strengthen gender-smart information systems. Through this program, we identified the need to first strengthen data management tools and processes in order to improve impact measurement.

How our investees are collecting and managing data for impact measurement

Investees in the Ilu Women’s Empowerment Fund (Ilu Fund) provide us with some good examples for how data collection and management can support impact measurement. Investee FINCA Guatemala, for example, contributes to the data collection process for Finca Impact Finance’s pioneering Mission Monitor Survey. This annual survey collects client data across the areas of financial inclusion, living standards, income and employment, women’s empowerment and personal aspirations. Finca Impact Finance then centralizes and analyzes data, which is published online featuring user-friendly visual dashboards, such as the following:

Finca Impact Finance impact measurement dashboard

Their methodology draws on the Poverty Probability Index (PPI®), a poverty measurement tool designed to calculate the likelihood that a household is living below the poverty line. The simple, 10-question framework is centered on basic information about the household’s makeup, education levels, housing quality, and lifestyle, enabling organizations to integrate objective data into their assessments and strategic decision-making. FINCA Guatemala monitors these indicators annually to identify and better serve clients’ evolving needs alongside impact performance.

Another Ilu Fund investee, Avanza Sólido based in Southern Mexico implemented a poverty stoplight in partnership with Fundación Paraguaya. This tool measures quality of life across six dimensions: income and employment, health and environment, housing and infrastructure, education and culture, organization and participation, and self-esteem and motivation. Scores are classified into three categories using traditional colors of a traffic light to indicate extreme poverty (red), poverty (yellow) and no poverty (green). 

Using mobile technology, this self-assessment provides the framework to determine a community’s most important needs, identify solutions, and define programming to eliminate poverty. With a solid baseline, Avanza Sólido will now monitor changes to these indicators going forward to see if clients experience changes in poverty levels and to determine where to direct resources.  

Several Ilu Fund investees have also participated in the 60db Microfinance Index, a comprehensive social performance assessment. Driven entirely by client voices, the Index gathers quantitative and qualitative data along six key dimensions of impact: Access, Business Impact, Household Impact, Client Protection, Resilience, and Agency.

Key challenges for managing impact data

Through technical assistance to portfolio companies, the Ilu Fund team observed that many institutions do not have the systems and processes in place to effectively collect, analyze and use outcome-level impact data. Among the key challenges identified, we found that:

  • Although MFIs collect a substantial volume of client data, information on socioeconomic variables is limited. It is critical to incorporate questions on clients’ business performance and living conditions, not only for initial credit applications but also on a regular basis to monitor changes over time. 
  • MFIs tend to have multiple sources of data that vary in level of digitalization. The industry must urgently move from paper to 100 percent digital to facilitate data collection. 
  • Many key data sources are not systematized or integrated within core banking systems, making it very difficult or impossible to perform analysis using data from different departments. Institutions must consider tools like a Data Warehouse to centralize and integrate data from multiple sources and data management software to store and access information. 
  • Impact data is not regularly analyzed to identify trends nor to inform strategic decision-making. When analyzed, there is limited use of automation to analyze information in real-time.
  • It is of utmost importance that impact data is disaggregated by gender and other relevant socioeconomic variables to provide powerful insights to inform the market strategy, such as client segmentation and product offering.

The path forward for microfinance impact measurement

Overcoming these challenges to strengthen impact measurement capacity will help MFIs better understand their clients, analyze the impact of their products and services and inform strategic decision-making. A focus on improved data management and collection is key. We recommend that MFIs undertake the following actions: 

  • Identify and empower dedicated personnel with impact measurement tools and knowledge. This role is often distributed in various positions which leads to lack of accountability and inconsistency. 
  • Provide education and capacity-building across the team to improve data and information collection.
  • Engage with subject-matter experts that can provide guidance and expertise in implementing new impact measurement strategies.
  • Invest in information systems to record, digitize, integrate and analyze information across business units.
  • Ensure impact measurement is incorporated in key strategic decision-making by leadership and in accountability to the Board of Directors.

Only once MFIs collect and analyze quality and in-depth impact data will we be able to affirm with certainty that this maturing sector is achieving the initial objective planted by Muhammad Yunus so many years ago: to lift people out of poverty. Twitter logo

Comments

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Mangwashi Phiyega , South africa
16 December 2023

Great impact assessment approaches. 👏

Nabil Kesraoui , Expert in inclusive finance and impact investing, Tunisia
14 December 2023

Measuring and managing impact within MFIs has become a "MUST" for better harmony between upstream (mobilization of resources from impact investors) and downstream (the granting of microfinancing with a commercial strategy that clearly integrates sustainability orientations) at the operational process level. In doing so, MFIs will represent a real lever generating impact targeted by investors. (Google Translate from French)

La mesure et la gestion de l'impact au sein des IMF's est devenu un "MUST" pour une meilleure harmonie entre l'amont (mobilisation des ressources auprès d'investisseurs d'impact) et l'aval (l'octroi des microfinancements avec une stratégie commerciale qui intègre d'une manière claire des orientations de durabilité) au niveau du processus opérationnel. Faisant ainsi les IMF's représenteront un véritable levier générateur d'impact ciblé par les investisseurs.

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