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Financial returns or social impact? What motivates impact investors’ lending to firms in low-income countries

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  • Kollenda, Philipp

Abstract

I analyze 70,000 transactions by retail impact investors on a peer-to-peer lending platform that intermediates loans to firms in low-income countries. Loans pay interest to investors and publicize indicators of expected social impact. Financial returns significantly influence investors’ decisions: a one percentage point increase in the interest rate increases funding speed seven-fold, investment probability two-fold and transaction size by 122 Euro. Expected social impact influences investors’ perception but has no influence (for female empowerment, employees and beneficiaries) or limited influence (for turnover) on investors’ funding decisions. When all available loans pay the same interest rates, female borrowers - but not firms with many employees or beneficiaries - are more likely to be chosen, suggesting that variation in financial returns can crowd out salient dimensions of social impact. The study implies that peer-to-peer lending platforms should function as gatekeepers of social impact and cannot outsource the evaluation of social impact to retail impact investors.

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  • Kollenda, Philipp, 2022. "Financial returns or social impact? What motivates impact investors’ lending to firms in low-income countries," Journal of Banking & Finance, Elsevier, vol. 136(C).
    • Handle: RePEc:eee:jbfina:v:136:y:2022:i:c:s0378426621001837
    DOI: 10.1016/j.jbankfin.2021.106224
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    Cited by:

    1. Alexandra Mora-Cruz & Pedro R. Palos-Sanchez, 2023. "Crowdfunding platforms: a systematic literature review and a bibliometric analysis," International Entrepreneurship and Management Journal, Springer, vol. 19(3), pages 1257-1288, September.

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    More about this item

    Keywords

    Access to finance; Crowdfunding; Impact investment; Investor behaviour; Sustainable investment; Peer-to-peer lending;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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