Paper by Philipp Kollenda accepted for publication in the Journal of Banking and Finance

The paper is a result of of his research master thesis at TI and will be part of his PhD thesis. In the paper, Philipp studies how investors make decisions about loan applications that pay financial returns and advertise social impact. Philipp works together with the Dutch peer-to-peer lending platform Lendahand, which aims to improve access to finance for small and medium-sized firms in low-income countries.

You can read more on Philipp’s website and on his Twitter profile.

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.

Article Citation

Philipp Kollenda, “Financial returns or social impact? What motivates impact investors’ lending to firms in low-income countries”, Journal of Banking & Finance, 2021, doi.org/10.1016/j.jbankfin.2021.106224.