International diversification and Microfinance

Rients Galema, Robert Lensink*, Laura Spierdijk

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

35 Citations (Scopus)

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. (C) 2011 Elsevier Ltd. All rights reserved.

Original languageEnglish
Pages (from-to)507-515
Number of pages9
JournalJournal of International Money and Finance
Volume30
Issue number3
DOIs
Publication statusPublished - Apr-2011

Keywords

  • Microfinance
  • Mean-variance spanning
  • International diversification
  • CONSTRAINTS
  • MARKETS

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