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Suitability of Microfinance as an Investment Option

  • Karel Janda
  • Barbora Svarovska

This paper investigates investment performance of the most commercially developed microfinance investment funds and it also includes a discussion of major economic characteristics of microfinance investments. When we analyze the relation between microfinance funds' returns and the performance of stock and fixed income markets in developed and emerging economies we find a slightly negative correlation. We show that returns of microfinance investment funds exceed the returns on the market portfolio. Together with reported near-to-zero beta estimates as a proxy for the systematic risk, this means that investment into microfinance investment vehicles may be recommended as a desirable addition to an investment portfolio.

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Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp470.

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Date of creation: Oct 2012
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Handle: RePEc:cer:papers:wp470
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  1. Stewart Jones & Sandra van der Laan & Geoff Frost & Janice Loftus, 2008. "The Investment Performance of Socially Responsible Investment Funds in Australia," Journal of Business Ethics, Springer, vol. 80(2), pages 181-203, June.
  2. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2008. "Microfinance meets the market," Policy Research Working Paper Series 4630, The World Bank.
  3. Janda, Karel & Svárovská, Barbora, 2009. "The Problems of Correlation in the Financial Risk Management – the Contribution of Microfinance," MPRA Paper 19486, University Library of Munich, Germany.
  4. Michal Bauer & Julie Chytilova & Jonathan Morduch, 2012. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India," American Economic Review, American Economic Association, vol. 102(2), pages 1118-39, April.
  5. Alessandra Cassar & Bruce Wydick, 2010. "Does social capital matter? Evidence from a five-country group lending experiment," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 715-739, October.
  6. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
  7. 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.
  8. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
  9. Gonzalez, Adrian, 2007. "Resilience of Microfinance Institutions to National Macroeconomic Events: An Econometric Analysis of MFI asset quality," MPRA Paper 4317, University Library of Munich, Germany.
  10. Ahlin, Christian & Lin, Jocelyn & Maio, Michael, 2011. "Where does microfinance flourish? Microfinance institution performance in macroeconomic context," Journal of Development Economics, Elsevier, vol. 95(2), pages 105-120, July.
  11. Karel Janda & Barbora Svárovská, 2009. "Investing into Microfinance Investment Funds," Working Papers IES 2009/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2009.
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