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Investing into Microfinance Investment Funds

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Investing into Microfinance Investment Funds

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This paper aims to measure the performance of microfinance investment vehicles (MIVs) in terms of risk and returns to investors. The study included 11 MIVs (in the form of mutual funds) and their sub-funds that publish data monthly. The authors describe the funds as “commercial MIVs that focus mainly on financial objectives while their social and development contribution is a sort of value added that sets these funds apart of traditional mutual funds.” The funds primarily invest in debt instruments with maturities of no more than five years and have more than half of their investments in the microfinance sector.
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The period for the study is January 2006 to March 2009, which notably includes a major portion of the global financial downturn. The mean monthly return on assets (based on net asset values per share) for the MIVs was modest but positive throughout the study period. The average monthly return for the MIVs was 0.36 percent. This compares favorably to the Morgan Stanley Capital International (MSCI) World Index, which measures the performance of developed country equity markets (-0.99 percent), and the MSCI Emerging Markets Diversified Financials Index, which measures equity performance in emerging markets (-0.40 percent). It also compares favorably to the JP Morgan Emerging Bond Index (EMBI+, 0.27 percent) and the four-week US Treasury Bill, an asset that is considered to be virtually riskfree (0.26 percent). The MIVs, however, did not perform as well as the Markit iBoxx USD Overall Index, which consists of corporate bond issues and bonds issued by the US government and government-sponsored agencies (0.41 percent).
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Though MIVs in this study saw increased annual returns each year from 2006 to 2008, the authors point out that these MIVs could suffer from the downturn further into 2009 and 2010. The MIVs also compared favorably to the above-mentioned benchmarks in terms of risk. In terms of total risk, measured by standard deviation in monthly returns, the MIVs had a lower mean (0.32 percent) than all other indices except for the “risk-free” Treasury Bills
(0.15 percent). There was increased volatility for the benchmarks in monthly returns starting in 2008 due to the financial downturn, but this is not seen in the MIVs data, though the earlier warning about possible repercussions after March 2009 again applies.
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Additionally, the authors find that there is no positive correlation between mean MIV returns and either equity market index, indicating that MIV investments may serve well in portfolio diversification. The same cannot necessarily be said for the correlation with fixed-income indices, as there were not enough statistically significant results to make a conclusion in this regard.
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Lastly, the authors compare MIV performance to the same indices using a risk-adjusted monthly return measurement. Including only statistically significant results, MIVs outperformed the other indices by 14 to 16 basis points. However, during times of positive global market sentiment (pre-financial downturn), MIVs lagged behind the MSCI World Index (other indices were not included in this regression).
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By Karel Janda and Barbora Svárovská, published by the Institute of Economic Studies, Faculty of Social Sciences Charles University in Prague, 2009, 35 pages, available at: http://www.microfinancegateway.org/gm/document-1.9.41460/Investing%20into%20Microfinance%20Investment%20Funds.pdf
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