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International Diversification and Microfinance

Rients Galema

Utrecht University - Utrecht University School of Economics

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Laura Spierdijk

University of Groningen

October 19, 2008

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, the paper indicates that investing in microfinance may be attractive for investors seeking a better risk-return profile. More specifically, the analysis suggests that investing in MFIs from Latin America, or microfinance and rural banks may yield more efficient portfolios. In contrast, adding MFIs from Africa or microfinance NGOs to a benchmark portfolio of international assets does not seem beneficial for a mean-variance investor.

Number of Pages in PDF File: 20

Keywords: Microfinance, Spanning, International Diversification

JEL Classification: E44, G20, O16

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Date posted: October 20, 2008  

Suggested Citation

Galema, Rients and Lensink, Robert and Spierdijk, Laura, International Diversification and Microfinance (October 19, 2008). Available at SSRN: http://ssrn.com/abstract=1286769 or http://dx.doi.org/10.2139/ssrn.1286769

Contact Information

Rients Galema
Utrecht University - Utrecht University School of Economics ( email )
Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Robert Lensink (Contact Author)
University of Groningen - Department of Economics, Econometrics and Finance ( email )
P.O. Box 800
9700 AH Groningen
Wageningen University and Research Center (WUR) - Development Economics Group ( email )
Hollandseweg 1
Laura Spierdijk
University of Groningen ( email )
PO Box 800
Groningen, 9700 AV
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