Does Impact Investing Deliver Both Impact and Returns? Evidence from Enterprise-Level Data in Kenya

This paper explores whether there are any signs of success of impact investing with two objectives of financial return and social impact, focusing on enterprise-level evidence from Kenya, a leader of impact investing in Sub-Saharan Africa. Using information on 144 private equity-backed firms between 2006 and 2021, peer-to-peer lending of over 70,000 transactions, and exhaustive market data pertaining to the $3.4 billion impact investing market of Kenya, there are mixed indications of success with the dual-objective hypothesis. Financial performance data reveals that all forms of private equity demonstrate positive and statistically significant effects on Return on Assets (ROA), with firms achieving moderate ownership concentration benefiting most from impact capital. However, social impact outcomes present a more complex picture: while Kenya's impact sector has attracted $2.3 billion in committed capital since 2020 and created an estimated 15,000 net new jobs in 2023, we find that 74% of these jobs are temporary or gig-based, and only 12% include health insurance compared to 18% in the traditional Kenyan SMEs. Analysis of 70,000 peer-to-peer lending transactions reveals that financial returns significantly influence investor decisions—a one percentage point increase in interest rates increases funding speed seven-fold—while expected social impact indicators show no influence or limited influence on funding decisions. The sectoral analysis results indicate a high concentration of 68% of the impact capital flows going to the fintech sector and the renewable energy sector. Meanwhile, the agriculture sector, which is the source of livelihood of 75% of the employed workforce of Kenya, enjoys only 11%. These results indicate that while the social impact dimension of impact investing is likely to gain the much-needed attention from the perspective of a competitive financial return, the chances of achieving the desired social impacts are restricted by the existing dependencies. This paper will thus end with the determinant implications for improvement of the social impact dimension of impact investing in the context of emerging markets.