Investment in Microfinance Equity: Risk, Return, and Diversification Benefits

Abstract

This paper is the first to draw a global picture of worldwide microfinance equity by taking full advantage of daily quoted prices. We revisit previous findings showing that investors should consider microfinance as a self-standing sector. Our results are threefold: 1) Microfinance has become less risky and more closely correlated with the financial sector, 2) Microfinance shares exhibit higher market betas than those of conventional financial institutions, and have equivalent currency exposure, and 3) Introducing a self-standing microfinance sector presents few diversification benefits. This paper confirms that microfinance has changed dramatically during the last decade.

Keywords: Microfinance, Portfolio Management, Equity, Emerging Markets

JEL Classification: G11, G15, O16, C58, G21