| dc.description.abstract | A key tenet in the definition of impact investing is that the investment must be made with the
intention of making a social impact. Yet, there is little literature that addresses the constitution
of such intentionality. Without clarity, the prospect of credibly implementing intention is bleak,
which renders the whole definition of impact investing weak and practically useless. By
specifically studying the intention of making investments in microfinance institutions (MFIs)
in India, this research addresses the question of whether such investments qualify as ‘impact
investments’ or not.
Towards the objective, the Reasoned Action Approach (RAA) is applied to elicit a causal
analysis to explain the behaviour of MFIs. The investors’ intention and influence on the
behaviour of MFIs is germane. 67 semi-structured interviews and questionnaires were
administered to five strata of strategic decision-makers of influencers viz., asset owners,
investment managers, banks and service providers. Social impact is characterised by corporate
governance, business behaviour, human resource and community involvement. Financial
returns are analysed using the Du Pont formula - Net Profit Margin, Asset Turnover Ratio and
Financial Leverage. Taken together, these seven characteristic behaviours unveil the
behavioural predilection of each stratum of respondents. The study factors that the behaviour
of MFIs is determined not only by the willingness but also by the ability of investees to manage
social impact alongside financial returns. The Analytical Hierarchy Process (AHP) is deployed
to disentangle complex decisions that are faced by MFIs. The AHP decrypts respondents’
choices, the ease with which such choices are made and unravels that there is a disposition to
select financial return vis-à-vis social impact. MFI promoters and donors are brought in for
validation.
The key findings are: (i) the intention of social impact was limited, and the focus was primarily
on financial returns; (ii) the relationship between social impact and financial return is complex
and inextricably inter-dependent; therefore, ‘standards’ of evaluation will have to combine
social impact and financial return (iii) both impact investors and MFIs, show a high degree of
isomorphism, on both intention and behaviour of social impact. These findings have direct
applications to (a) public policy on impact investments in India and elsewhere, (b) social
enterprises’ strategy, (c) corporate policies of impact investors and (d) bridge the gap between
theoretical definitions and practical applications. The literature section can also be applied for
studies on behavioural finance, institutional structures and regulation of impact investments. | en |
