Win-win or tradeoff? Investigating the hybridity of impact investing in Cambodia's microfinance industry

Impact investing plays a critical role in financing enterprises that have the potential to tackle social problems through business means, particularly in developing countries. However, concerns about over-indebtedness of microfinance institutions have fueled questions regarding potential trade-offs between financial and social efficiency of impact investing and demand further investigation. Using the case of Cambodia's microfinance industry, this paper first examines whether the microfinance industry outperforms from the perspective of both social and financial returns. In addition, as impact investments by Development Finance Institutions (DFIs) form the backbone of the microfinance sector, a related objective is to investigate whether social or financial returns are more important for DFIs when making impact investment decisions. Using Data Envelopment Analysis (DEA) and Tobit regression, our research finds that while Cambodian MFIs excel in financial efficiency, social efficiency is considerably lower. The analysis also finds that DFIs' investments are predominantly driven by financial efficiency rather than an approach that considers both social and financial outcomes. Our analysis suggests the need for enhanced impact measurement frameworks and a reevaluation of DFIs impact investing strategies to ensure a more equitable focus on both financial and social impacts.