Seminar – Getting in the Set: The Counter-Intuitive Effects of Impact Investing in Global Microfinance

Dr Tyler Wry, The Wharton School

Much of the funding in global microfinance is from impact investment funds. These funds seek out and value opportunities that deliver strong social and financial returns. This is considered a way to grow capital while having a positive influence in the world. Building on insights from categories and resource dependence theories, however, we argue that the influence of such funds is uneven across different types of microfinance institutions (MFIs) and is likely to have an overall negative impact. This is related to how impact funds apply financial and social screens when making investment decisions: MFIs are first screened based on financial performance; social screens are then applied to the MFIs that comprise the set of “investable” organisations. Based on this, we predict that higher levels of impact investment funding in a nation create incentives for most MFIs to reduce social outreach in order to get into the funder’s consideration set. For those at the top of the market, however, there is an incentive to increase social outreach so as to stand out and attract funder attention. We test our arguments with a comprehensive analysis of the microfinance funding structure in 115 countries from 1995-2013, which we supplement with interviews with 34 investment fund managers. Results are consistent with our predictions: an increased supply of impact investment capital in a nation’s microfinance sector results in significant mission drift among most MFIs, but modestly increases outreach at the top of the market.

Speaker bio

Dr Tyler Wry studies hybrid ventures, which are organisations that simultaneously pursue goals associated with different meaning systems: for example, nanotechnology companies that integrate scientific discovery and technology commercialisation, and social enterprises that work to generate profits while addressing social issues. These organisations have the potential to generate important commercial and social innovations, but also face a number of unique challenges, particularly in the startup stage of development. Building on this, Tyler’s research focuses on how hybrids emerge, attract resources, and positively affect society.

Tyler’s work has appeared in outlets such as the Academy of Management Annals, the Academy of Management Journal, the Academy of Management Review, the Journal of Business Venturing, and Organization Science. He serves on the editorial boards of Administrative Science Quarterly, the Academy of Management Journal and the Academy of Management Review. In his spare time, Professor Tyler is a tired dad who enjoys running, racquet sports, and fleeting moments of quiet.