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

Philipp Kollenda

Journal of Banking & Finance, 2022, vol. 136, issue C

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.

Keywords: Access to finance; Crowdfunding; Impact investment; Investor behaviour; Sustainable investment; Peer-to-peer lending (search for similar items in EconPapers)
JEL-codes: D14 D64 G41 O16 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:136:y:2022:i:c:s0378426621001837

DOI: 10.1016/j.jbankfin.2021.106224

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