How We Measure Impact
To assess the economic impact of our investments in small and medium enterprises (SMEs), SEAF looks beyond traditional financial returns to consider the impacts of these growing companies on a variety of stakeholders in the company’s local economy. For this approach, we conduct an annual data survey of all of our portfolio companies, complemented by in-depth company case studies to capture and present a more complete picture of the development impact of SME investment.
Our Data Survey
Since 2004, SEAF has collected annual quantitative development impact data from each of our companies across our international portfolio. Using standardized data forms, we track a range of metrics, beginning with the year prior to investment to assess the cumulative impact of our partnerships over the life of the investment. Recognizing the potential of SME investing to impact a range of stakeholders, we collect data on employment, wages, benefits, training, suppliers, customers, taxes, community development, formalization and corporate governance.
The Multiplier Effect
Through in-depth case studies of a representative selection of portfolio companies, SEAF calculates the multiplier effect of our investments. Using a cash flow model, the multiplier effect considers the financial return of an investment plus additional external social returns.
For each case study, SEAF interviews stakeholders associated with the company—including owners, managers, suppliers, competitors, producers of complementary goods, employees and consumers—to better understand the impact of our investments beyond the more obvious quantifiable socioeconomic indicators. These benefits and costs are estimated in dollar terms and incorporated into a cash flow model, along with the company’s financial performance. This combined cash flow model is then compared to the amount invested in the company to calculate the net dollars generated in the local economy for each dollar invested. On average, from the case studies we have conducted to date, each dollar invested by SEAF generates an additional $13 in the local economy.
The Economic Rate of Return
SEAF also uses the merged social and financial cash flows to calculate an Economic Rate of Return (ERR), which combines the financial rate of return (average annual percent return generated by an investment) with quantifiable social returns. For the case studies conducted to date, the average ERR on SEAF’s investments is 83%.
SEAF’s in-depth case studies involve site visits and interviews with company managers, employees and other stakeholders. These interviews capture and communicate impacts that cannot be quantified and that are included as personal examples of development in SEAF’s various development impact reports. Some of these stories include:
- Our entrepreneurs have helped their suppliers to improve quality and supply reliability and expand their businesses.
- Our portfolio companies have worked with local farmers to access sources of financing and to make necessary improvements to maximize their productivity.
- Our companies’ products have provided local customers with improved prices or better quality products and services.
- Employees at our portfolio companies have used their increased earnings and job security to invest in their families’ futures.
For a closer look at, and specific examples of the impact our investments have on our entrepreneurs and their surrounding communities, visit our catalogue of Featured Portfolio Companies.