TY - JOUR
T1 - International diversification and Microfinance
AU - Galema, Rients
AU - Lensink, Robert
AU - Spierdijk, Laura
N1 - Funding Information:
Since most MFIs are not deposit-taking institutions and since domestic capital markets are thin, international capital markets will become more and more important for the future funding of MFIs. In the 2004–2006 period, foreign investment in Microfinance already more than doubled, from USD 1.7 billion to around USD 4.4 billion ( Deutsche Bank Research, 2007 ). Approximately 50 percent of the funding of foreign capital to MFIs is channeled through specialized Microfinance Investment Vehicles (MIVs). The number of MIVs has increased rapidly and there are now over 80 in existence MIVs. The main investors in MIVs are individual investors. The share of international financial institutions in MIV funding has declined from 36 percent in 2005 to 30 percent in 2006, while institutional investors are catching up. Since 2004 institutional investors have been expanding their interest in the microfinance industry. There is especially an increasing interest from pension funds to invest in microfinance. An example is the launching of the Institutional Microfinance Fund of the Dutch retail bank SNS, which is almost entirely funded by Dutch pension funds.
PY - 2011
Y1 - 2011
N2 - International commercial banks, institutional investors, and private investors have become increasingly interested in financing microfinance institutions (MFIs). This paper investigates whether adding microfinance funds to a portfolio of risky international assets yields diversification gains. By using mean-variance spanning tests with short-sale constraints, we find that investing in microfinance may be attractive for investors seeking a better risk-return profile. Specifically, the analysis suggests that investing in MFIs from Latin America, or microfinance and rural banks yields more efficient portfolios. In contrast, adding MFIs from Africa or microfinance NGOs to a portfolio of international assets is not beneficial for a mean-variance investor.
AB - International commercial banks, institutional investors, and private investors have become increasingly interested in financing microfinance institutions (MFIs). This paper investigates whether adding microfinance funds to a portfolio of risky international assets yields diversification gains. By using mean-variance spanning tests with short-sale constraints, we find that investing in microfinance may be attractive for investors seeking a better risk-return profile. Specifically, the analysis suggests that investing in MFIs from Latin America, or microfinance and rural banks yields more efficient portfolios. In contrast, adding MFIs from Africa or microfinance NGOs to a portfolio of international assets is not beneficial for a mean-variance investor.
KW - International diversification
KW - Mean-variance spanning
KW - Microfinance
UR - http://www.scopus.com/inward/record.url?scp=79952049644&partnerID=8YFLogxK
U2 - 10.1016/j.jimonfin.2011.01.009
DO - 10.1016/j.jimonfin.2011.01.009
M3 - Article
VL - 30
SP - 507
EP - 515
JO - Journal of international money and finance
JF - Journal of international money and finance
SN - 0261-5606
IS - 3
ER -