International diversification and Microfinance

Rients Galema, Robert Lensink and Laura Spierdijk

Journal of International Money and Finance, 2011, vol. 30, issue 3, 507-515

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.

Keywords: Microfinance; Mean-variance; spanning; International; diversification (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:30:y:2011:i:3:p:507-515

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