Wednesday, 08 January 2014 07:08

Mutual Impacts: Andrew & the Indian School Finance Company

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Mutual Impacts: Andrew & the Indian School Finance Company

As an IDEX Fellow we are thrown into the field, landing in a social enterprise where we spend 6 months working to have an impact. In the end we achieve our impact and in the process our placement social enterprises impact us as well. As a fellowship program, a major objective of IDEX is for the fellows to learn and gain real experience. We all signed up exactly for that reason, but it is interesting that along the way our ambitions to achieve something greater leave us focusing more on the impact we have on our partner organizations than the impact they have on us.

From the Indian School Finance Company (ISFC), my placement social enterprise, I learned three key points. First, I realized that passion can be a liability. Usually social enterprises treat passion as an asset if not a requirement for employees. Yet I saw that passion can be a serious liability in an enterprise that relies on effective risk management. ISFC survives because it competently evaluates the risk of loaning to affordable private schools and determines which schools have both the capacity and intention to repay. Earlier in ISFC's short history the company faced a small crisis of spiking delinquencies and defaults. A review of the loans going bad found that the bulk of them had been approved and disbursed despite the schools failing to meet a number of the basic criteria for qualifying to receive a loan. These loans had only passed through the system by virtue of emotional advocacy by various ISFC employees. These ISFC employees had argued passionately that these schools were lead by inspiring entrepreneurs devoted to quality education for the poor  or that the students were lovely children and cuter than any others they had seen at other schools. The damage done to the company by the losses associated with these loans demonstrated that credit policy should not be routinely violated for emotional reasons. The long term survival and thus social impact of ISFC demands that the company maintain an objective and dispassionate analysis of clients.

The second key point I learned, I had already known, but internalized in a new way. Not every sale or customer of a social enterprise needs to directly generate social impact. You can rely on the basic case of cross-subsidization. While most of your customers may be needy and incapable of delivering large margins, you can still cater to wealthier clients who can give the company healthy profit margins. I believe at ISFC the problem arose that cross-subsidization is not officially baked into the business model, therefore when loans are issued to wealthy schools in contravention to the official policy of only making loans to schools where there will be an impact, then the compromise feels dirty. Yet, if the cross-subsidization model were explicitly included in the business model then such compromises would only feel like a natural extension of the social mission.

The third key point I learned was to look within your own organization for inefficiencies. Social enterprises often get caught up in talking about how the society within which they operate and the governments they have to deal with are extremely inefficient. Yet it can bee too easy to ignore the inefficiency inside the enterprise. It is only logical that when you draw your employees from the local community that their work habits and cultural attitudes will reflect the same behaviours as those social enterprises complain about in the community. Thus if you find yourself complaining about external inefficiencies in society, you may also want to scour your own enterprise for the same problems.

In summary, the three key points I learned were that sometimes the mission requires you to be dispassionate, officially incorporate cross-subsidization policies into the business model so they don't feel like dirty compromises, and whenever you operate in an inefficient environment check that your own organization and staff don't share the same problems.

Now, to review what I have accomplished and the impact I have left on ISFC. I completed five projects and impacted the operations and habits of ISFC in a variety of ways. I built a credit scoring model which enables ISFC to enter a wide swath of loan application data into the system and generate a credit score which correlates with likelihood of repayment. I played a leading role in redesigning the loan application booklet. A process which required soliciting input from every single department of the company and integrating each department's needs, desires and interests in to one aesthetically pleasing and easy to fill out form. I built a sophisticated excel spreadsheet to monitor delinquency trends in the portfolio filtering results along over twenty variables. I worked to improve a host of their key excel workbooks, including the authoritative Credit Approval Memo which carries the loan application data along with the judgements of each department and the CEO. For each workbook I sought to streamline the workflow, standardize terminology between files, automate routine tasks, and add features. The overall impact was to substantially improve the efficiency of any staff working with the documents while simultaneously dramatically reducing data entry errors and increasing readability. I completed a financial ratios analysis of comparable firms in ISFC's industry. This analysis benchmarks ISFC's performance in categories such as administrative costs as a percent of revenue or delinquent loans as a percent of the outstanding portfolio against industry averages. In this manner ISFC can identify key areas for improvement as well as competitive advantages. Finally, in addition to the work product I contributed to ISFC I believe I made a work culture impact by emphasizing the need for high quality data collection and organized data retention. This may help ISFC to better monitor company performance for years to come.

To sum it all up with extreme brevity. In 6 months ISFC and I learned a great deal from eachother. On the whole I contributed technical expertise in calculating and monitoring risk as well as a fervor to good data collection. ISFC taught me about operating a social enterprise and navigating a landscape where many of the key players will have little interest in social impact. I learned about the challenges of government regulations. I learned about managing staff who are unaccustomed to superiors with high standards. I learned about marketing to customers who come from a very different background than myself. I learned a ridiculous amount of excel formulas to complete my work. I learned that proving your worth is the best way to gain cooperation from coworkers. On top of all that I am certain I learned a great deal more about social entrepreneurship, business, and India which I will not fully appreciate until later in life. I know I got what I came to India for, I have learned and I have made a difference. ISFC and I have had a bounty of positive mutual impacts.

 

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