XXV Edition

1-2 December 2016"

Impact-Oriented Microfinance Investment Vehicles: Are They Performing in Line or Below the Market Rate of Return?

La Torre Mario, Sapienza University of Rome
Chiappini Helen, Sapienza University of Rome

Social impact investments (SIIs), generating both social impact and financial return, are growing fast, attracting an increasing number of investors. The Organization for Economic Cooperation and Development (OECD, 2015) has recently fixed a number of eligibility criteria in order to better define the perimeter of SIIs. Among these conditions, the OECD established a cap for SIIs financial return, which should not exceed the market rate of return. The aim of this paper is to investigate if Microfinance Investment Vehicles (MIVs) - listed on the market and labeled as “impact-oriented MIVs” - are in line with that requirement. For this purpose, we compare monthly total return performance of MIVs - available from Thomson Reuters Datastream – with market return captured by a set of selected benchmarks. Risk adjusted performance measures suggested by Sharpe (1966) are also employed. Results show that impact-oriented MIVs meet the OECD criteria only if we look at financial return; when risk-adjusted performance measures are taken into consideration, impactoriented MIVs outperform the market. We tested our results with a comparative sample of alternative MIVs aiming at social impact, but not labeled as impact-oriented. Results show that the financial return of impact-oriented MIVs outperform the comparative sample, while their risk-adjusted performance is lower than that “alternative” MIVs. The paper contributes to the existing literature adding a neglected perspective and providing additional information on impact-oriented MIVs financial performance, useful to professionals, investors and policy makers.

Area: Microfinance and Economic Development

Keywords: impact finance, social impact investments, microfinance, microfinance impact vehicle; impact vehicle performance; impact investments performance, Sharpe index, social impact funds

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