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International diversification and Microfinance

Author

Listed:
  • Galema, Rients
  • Lensink, Robert
  • Spierdijk, Laura

Abstract

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.

Suggested Citation

  • Galema, Rients & Lensink, Robert & Spierdijk, Laura, 2011. "International diversification and Microfinance," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 507-515, April.
    • Handle: RePEc:eee:jimfin:v:30:y:2011:i:3:p:507-515
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    References listed on IDEAS

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