Is sustainability measurable? The startup HEDERA has developed a digital toolkit to collect and visualise data for the microfinance sector - making it easier to find out whether projects achieve the desired impact.
How can we measure sustainability? It's not an easy question to answer. As with any measurement, first it has to be clear exactly what is going to be measured. Quantities are given in the metric system, for example, temperature in degrees Celsius. But when it comes to a culturally- and socially-formed concept like sustainability, which can mean everything or nothing, things look very different. How can sustainable development be made measurable and transparent, and how can it be designed to best meet people's needs?
Impact is key for all kinds of projects, including those run by international organisations and NGOs that aim to be of social or ecological benefit. The term "monitoring and evaluation" is often used here. This means that projects should be reviewed and, if necessary, adjusted while they're being carried out. Afterwards, an assessment should be made of what went well or where there may be room for improvement for the next project. However, smaller NGOs or social businesses in particular often lack the experience and knowledge to collect this data - or it is unclear which information should be collected and which is simply not relevant.
With help of its digital tools, the Berlin startup HEDERA wants to demonstrate the exact needs and the sustainable impact of investments made in the microfinance sector. With the help of transparent, standardised indicators, it wants to contribute to making the impact of projects measurable in terms of the 17 UN sustainability goals (SDGs) and to provide all necessary information between the stakeholders involved - local applicants, microcredit providers and their investors - via a platform. Social investors and microfinance institutions should thus be able to identify sustainable and effective investment opportunities and monitor the progress of the projects in terms of their intended impact - whether individual households have gained improved access to energy, for example. At the same time, simple surveys are used to keep the time and cost of data collection low.
Part of the digital product range of the Berlin-based startup is a so-called Impact Toolkit. The toolkit includes software consisting of a mobile app for data collection, a web dashboard for data analysis and an application for creating digital reports. The toolkit is intended to enable multidimensional assessment. Among other things, the Poverty Probability Index (PPI), a measuring instrument for poverty, will be used to assess the social impact at a household level. The PPI is based on ten questions, which vary from country to country and are regularly adjusted. Another measure is WASH (Water, Sanitation and Hygiene) - access to drinking water, sanitation and hygiene. HEDERA uses the JMP evaluation framework from the WHO and Unicef for this purpose. The third measuring instrument looks at access to energy. This multidimensional variable cannot be measured solely by answering yes-no to factors such as the availability of a grid connection or the use of biomass for cooking. Therefore, the ESMAP Multi-Tier Framework is used, which aims to map energy access and energy poverty along all relevant dimensions such as capacity, duration, quality, affordability, legality, availability, comfort, health and safety.
A brief detour into the world of microfinance
How does microfinance actually differ from other financial investments? Microfinance institutions provide small amounts of money for projects that are primarily aimed at achieving sustainable, positive change. For example, microfinance is given to people who are small entrepreneurs or who want to take this step to fight poverty. And there are also loans that provide access to energy (through green loans), housing, water (water loans) and education, and that strengthen resistance to climate change. Unlike other financial investments, the focus here should not be on generating returns, but instead about creating positive impact.
The term "microfinance" was coined in the 1970s. One of the pioneers is Muhammad Yunus, the founder of the Grameen Bank in Bangladesh, who was even awarded the Nobel Peace Prize in 2006 for his work in this field. Today, there are many different ways of granting loans and repayment methods. However, most of them are based on reciprocity and social commitment. Borrowers form something similar to a cooperative, with a jointly managed account. Thanks to regular meetings with the other borrowers or savers, and the fact that people often know each other because they're from the same neighbourhood, the social pressure is high to pay back the loans taken out.
However, there is also criticism: profit-oriented microfinance institutions have also emerged, which are problematic to evaluate because they grant loans at high interest rates to people who have no experience with loans or who lack sufficient business skills. This can lead to the fact that the borrowers are forced to repay the amounts with more and more loans taken out - they thus get into a spiral of debt. Such loans actually contribute to aggravating the situation rather than being a tool for poverty reduction.
The original idea of microfinance nevertheless remains worthy of support and is fortunately also being pursued by many microfinance institutions. Digital products such as Hedera's could definitely make a contribution - so that projects can be better targeted and designed, and form part of long-term and effective sustainable development.
This is a translation of an original article that first appeared on RESET's German-language site.
Co-author: Lydia Skrabania