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International Diversification and Microfinance

20 Pages Posted: 20 Oct 2008  

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

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Date Written: October 19, 2008

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, 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.

Keywords: Microfinance, Spanning, International Diversification

JEL Classification: E44, G20, O16

Suggested Citation

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

Rients Galema

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Robert Lensink (Contact Author)

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Laura Spierdijk

University of Groningen ( email )

PO Box 800
Groningen, 9700 AV
Netherlands

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