Microfinance Investment Research Articles

Assisted Self‐help Housing in Mexico: Advocacy, (Micro)Finance and the Making of Markets

AbstractThis article examines forms of housing finance that offer poor households opportunities for sourcing resources for construction work through non‐mortgage microloans. In Mexico, these housing microfinance schemes have recently been incorporated into national housing policies. On a global level, the past 10 to 15 years have seen the emergence of institutional investment in microfinance. I reflect on these processes in this article by bringing critical accounts of financial inclusion in development studies and the debate on financialization within urban studies and beyond into dialogue. I combine micro‐ and macro‐scale perspectives to examine how households become financial clients and how finance gains influence by expanding capitalist markets into the informal housing sector. This discussion is based on policy review and document analyses and an empirically grounded account of an assisted self‐help housing case study. In the article I draw on three focal concepts—risk, debt and marketization—to highlight the ambivalences of the expanded access to finance for poor households engaged in self‐organized building practices. These ambivalences emerge from the multiplicity of operational logics and motivations in the field of housing provision for the poor, and the profoundly conflicting rationalities of financial‐ and social‐sector actors.

Refinancing MFIs with market power: theory and evidence

Microfinance investment vehicles (MIVs) play an increasingly important role as a source of funding for microfinance institutions (MFIs). This paper presents theory and evidence on the relation between the use of MIV capital and MFI market power. We present a model in which MIVs are social-minded in that they do not lend to MFIs which exploit their market power in the market for microcredit. Consistent with the theoretical model, we find empirically that measures of MFI market power are negatively related to the likelihood of using MIV capital. This suggests that MIVs play an effective role in promoting social objectives in microfinance.

Sectorial evaluation of Islamic banking contracts: a fuzzy multi-criteria-decision-making approach

Improving the efficiency and performance of microfinance investments is essential to achieve its objectives in terms of economic and social development. One parameter that influences such a performance is the kind of the activity exercised by the micro-entrepreneurs. The aim of this paper is to provide a decision-making guide to help both microfinance institutions and investors to choose the appropriate Islamic banking contract with respect to each sector of activity. To attain this goal, an Intuitionistic Fuzzy TOPSIS evaluation is conducted in collaboration with Moroccan Islamic finance experts and practitioners. The proposed approach has the advantage to deal with the lack of quantitative historical data, as well as the uncertainty of the decision makers’ judgments. The suggested work will be helpful for the Moroccan participative banks and for the future Islamic microfinance institutions as well.

Drivers of Investor Motivations for Impact Investments: The Case of Microfinance

Recent empirical research shows that both financial and value-related considerations prevail for an individual’s decision to invest in companies or products deemed sustainable or socially responsible. This paper investigates how different investor motivations vary across forms of sustainable investment strategies, in particular between broad sustainable investments and targeted impact investments. We use a unique dataset of retail investors engaged in a development oriented microfinance investment vehicle to analyze how different motives affect the demand for distinct sustainable investments. Our results show that different motives trigger different types of sustainable investments. While decisions to engage in general sustainable investments are mainly linked to return and risk expectations, the investment decision for the impact investment vehicle is connected more strongly to value attributes. In line with previous findings on general sustainable investments, we find that the decision to invest is driven more by value-related criteria while the amount invested is driven by financial motivations. Our analysis furthermore shows that distrust in the financial markets is a major driver for the share invested in general sustainable investments, but not in impact investments.

Social purpose increases direct-to-borrower microfinance investments by reducing physiologic arousal.

Social purpose increases direct-to-borrower microfinance investments by reducing physiologic arousal.

Performance of the Microfinance Investment Vehicles

Over the last few years, the microfinance sector has seen its transformation. Microfinance institutions seek a wide range of sources of funding, while private investors seek not only social returns but also financial returns. This new approach has led to the emergence of microfinance investment funds and initial public offerings of certain Microfinance institutions. Microfinance now seems to be seen as a new investment opportunity by global investors.Aim of this paper is to study the performance of public Microfinance Investment Vehicles. Despite a significant currency risk, we find that the integration of microfinance assets diversifies the investor’s risks and improves the efficient frontier. We conclude that microfinance institutions, via investment vehicles, are likely to attract capital from socially responsible investors seeking new investment opportunities despite a sharp decline in the Sharpe ratio over the past few months.

Exploring the “social failures” of Islamic banks: a historical dialectics analysis

PurposeThis paper aims to argue that the current environment in which the Islamic banking system is situated is not ideal for the system’s pursuance of its socioeconomic ideals, thus necessitating the system’s shift from pursuing falah to maximizing profits.Design/methodology/approachThe paper theorizes and conceptualizes this shift from falah to profit maximization using two complementary theories – systems theory and institutional theory – to prove that such a shift is not unexpected. The paper further adopts a dialectical analysis that is somewhat historical to analyse the shift.FindingsThe measure of the Islamic banks’ performance in terms of their social ideals is misplaced, as the environment in which they currently operate does not support such goals. Thus, stemming from the theoretical base, the Islamic banks’ pursuance of profit maximization instead of falah should not be unexpected. The paper concludes that despite the unfavorable environment, the social ideals of the Islamic banking system may still be met, to an extent, through investment in microfinance and awqaf.Research limitations/implicationsThe paper adopts document analysis for sourcing data majorly from prior studies. Hence, the authors do not conclude that the analysis herein is applicable to all Islamic banks. Secondly, as the authors could not get a complete historical account of the Islamic banking system’s development, some aspects of the dialectical analysis – contradiction and change – have been discussed in a general fashion.Practical implicationsThe need for Islamic banks in the current environment, especially for the Muslim population, cannot be over emphasized; however, the achievement of falah given this current environment may be daunting.Originality/valueThe current analyses of the shift of Islamic banks from pursuing falah to pursuing profit maximization are not well-defined, as they lack a proper theorization of the challenges faced by Islamic banks. This paper fills this gap.

A MATHEMATICAL MODEL OF PROFIT-LOSS SHARING SCHEME OF SMALL INVESTMENT FOR TRADITIONAL MARKET TRADERS USING THE SEMI-FUZZY LOGIC APPROACH

A mathematical model of micro-finance investment using profit-loss sharing scheme are made and implemented to simulated data. Here profits from the venture will be shared in a portion between the investor and the entity running the business. The scheme can be classified as Musharaka type of investment in Sharia economy. The proposed model is theoretically implemented with data from small-scale traders at a local traditional market who have small turnover. They are common target of usurers who lend money with high interest rate and penalties. If the traders are in unfortunate conditions, they are potentially in poorer condition than before committing themselves to the usurer. In the conventional practices of the profit sharing scheme, the investor will get a fixed portion of the trader’s income, which is applied for all kind of small-scale traders. If the traders are diligent and hard worker and have very high turnover, then the investor will gain much more profit whether the contributed capital is small or large. In this paper, the scheme is implemented using Semi-Fuzzy Logic Approach so that the profit-loss sharing scheme can achieve its intended goal, which is to make a profitable investment not only for the investor but also for traders. The approach is not fully using Fuzzy Logic because some variables are still in crisp numbers and the optimization problem is regular in the form of crisp numbers. Based on the existing data, the results show that the optimal profit share is depended on the income of the traders. The higher the income coming from the venture, the lesser the profit share for the investor which is reasonable with the fixed initial contributed capital. Keywords: Profit-Loss Sharing, Fuzzy logic, Musharaka, Optimization, Mathematical modelJEL Classification: C61, D60

Do microfinance investment managers add value, and how?

The purpose of this paper is to analyse and describe whether or not microfinance investment managers add value for their clients and investors, and how, which is important to enhance the understanding of the microfinance investment market. This is achieved by analysing whether microfinance investment managers deliver on their promise of a double bottom line with social and financial performance. This analysis is based on a database of a pioneering microfinance investment manager, including data on 1,465 loans to microfinance institutions (MFI) from 2003 to 2014. The results are based on descriptive analyses and a logistic regression analysis. The results of this paper’s analysis provide the following indications: First, microfinance investment managers add value by acting as stewards for socially responsible investors. Second, microfinance investment managers as intermediaries have provided a predictable and stable source of funding to MFIs as regards interest rate costs and loan duration to maturity over the past 10 years, despite the financial crisis in 2008. Third, the microfinance market is associated with high credit risk and microfinance investment managers provide risk management and diversification.

The access of microfinance institutions to debt capital: An empirical investigation of microfinance investment vehicles

Abstract The attraction of funding is a major challenge for microfinance institutions (MFIs), especially for those organizations that are not permitted to collect deposits. In this study, we analyze the access of MFIs to debt capital from microfinance investment vehicles (MIVs). Using a data set on over 5000 MIV transactions, we examine the link between an MFI's access to MIV funding and its maturity and performance. We identify a positive relation between debt capital from MIVs and the maturity of MFIs. Furthermore, MFIs with a solid financial performance in terms of portfolio quality exhibit better access. Our findings also suggest that MFIs maintaining their social mission experience easier access to funding from MIVs.

Current Issues of the Formation of the Investment Environment and Potential in Georgia

Abstract The stage of the formation and establishment of a market economy in Georgia raises the necessity for economic science to solve fundamentally different problems concerning the improvement of the investment environment and investment climate in national economy. After the collapse of the former Soviet Union, the replacement with new relationships has been quite difficult and painful in which foreign investments should play a crucial role. Issues to be discussed include the questions that explore some of the categories and the constraints of the investment climate (potential). All this leads to the relevance of the article and, therefore, determines the purpose of the article. The research process uses general dialectical methods of socio-economic research (description, analysis, systematization, abstraction, synthesis) as well as modern methods of research of economic theory (systemic, institutional, evolutionary). The scientific aim of the research is to highlight the current issues of the investment environment and investment climate in economy, to study the transformation processes taking place in Georgia during the last two decades, to conduct analysis using proper methods, to show the current social and political as well as other important processes, to generalize them and to form proper opinions. Findings based on research suggest that it is possible to speed up the process of economic development of Georgia. However, the situation will remain difficult in the region and the factors causing the recession _ instability in oil prices and the weakening of the national currency against the US dollar will still be present. In conclusion, the opinion can be formed that a stable and predictable legislative process is important for the investment environment. Therefore, all the parties that may undergo the changes should be informed and involved in every project planned by the government; At present, it becomes necessary to further extend the deregulation policy, which should include the development of financial and investment sectors and support of the establishment of appropriate infrastructure, promotion of the further development of microfinance institutions, investment companies and funds, designing the system of investment insurance and stimulation, elimination of unnecessary bureaucracy and artificial barriers, etc.

Through Islamic Banks' Zakat House (IBZH) : Investment of Zakah Funds in Microfinance to Remove Poverty in Bangladesh : A New Model

One of Zakat’s main objectives is to help eliminate poverty and famine. And in Shari’ah, the obligation of zakat payment is elaborated which if not maintained holds severe consequences. Zakat has its unique features of supporting the poor in providing a collateral free financial stability. The main socioeconomic factors in all the developing Muslim countries are poverty, unemployment and economic inequality which results in not meeting the basic needs of the poor. In a country like Bangladesh consisting of Muslim Majority, although governmental and nongovernmental institutions collect and distribute zakat yet the ultimate goal of zakat is not attained completely. At present, modern Islamic jurists reinforce the notion of microfinance investment through the collection and usage of zakat money. This paper consists of a static ground for the poverty removal creating a financial institution which is equally responsible as those present in Bangladesh but with a different route in eliminating poverty where schemes can be initiated along with opening opportunities of employment. Finally, it also surfaces the model in investment of zakat fund through IBZH with opinions of Islamic jurists. This Islamic Banks Zakah House (IBZH) is an amalgamated forum of the present eight established private Islamic banks of Bangladesh

Accounting for market risk in microfinance investments

Microfinance is primarily designed to have social impact. However, little is known about the financial attractiveness of investing in microfinance. Most microfinance institutions are private instead of publicly listed on a stock exchange. Hence, existing research relies on accounting-based returns to determine the diversification characteristics of microfinance investments relative to other asset classes. These prior studies use accounting-based risk measures as a proxy for market-based risk measures. We document that for a sample of publicly listed microfinance institutions, accounting-based and market-based risk measures have low correlation. Therefore, using accounting-based risk measures might underestimate the (market) risk embedded in investing in microfinance institutions. In addition, we show that mean-variance spanning tests that use accounting-based returns of microfinance institutions overstate the added value of microfinance institutions in investment portfolios. Taken together, our results indicate that previous research on the attractiveness of investments in microfinance institutions could be exaggerated.

Microfinance: untapped potential for global health.

Microfinance has recently come under criticism for not meeting its potential for poverty reduction and its exploitation by for-profit entities. Access to finance still remains limited for many of the world’s poor. This re-examination of microfinance should not impede its proliferation and development into a tool to improve health for the underserved. There are significant returns on microfinance investments in health at the household level. Microfinance that allows the consumption of goods and services that can improve health can also lead to increased savings and productivity making it a financially viable and powerful tool for both health improvement and development.

CAN INVESTMENT IN MICROFINANCE FUNDS IMPROVE RISK-RETURN CHARACTERISTICS OF A PORTFOLIO?

This article is concerned with contribution of microfinance investment funds to a sustainable financial portfolio. With regard to the dependence of microfinance funds’ returns on the performance of stock and fixed income markets in developed and emerging economies we find slightly negative correlation when measured by the portfolio beta measure. Our regression analysis confirms that returns on investment in microfinance investment funds exceed the returns on the market portfolio. This result together with reported near-to-zero beta estimates as a proxy for the systematic risk may be taken to be a clear financial advantage of an inclusion of microfinance assets in a portfolio compared to pure stock or bond portfolios. The results based on CAPM beta and Jensen's alpha are confirmed by mean-variance spanning test. We show that the socially responsible investors may invest into microfinance without sacrifice with respect to pure financial indicators.

Challenges of Microfinance Investment Vehicles ; Toward the Double Bottom Lines of Financial and Social Returns

Challenges of Microfinance Investment Vehicles ; Toward the Double Bottom Lines of Financial and Social Returns

Expanding the Frontiers of Microfinance in the Service of the Poor: Experiment with Water and Sanitation

Microfinance application in water and sanitation is a burgeoning concept. For some Microfinance Institutions (MFIs), the concept and its viability appear nebulous since there is inadequate information to enable them create effective portfolios for that. This paper provides a clear case of extending microfinance to water and sanitation businesses. It adopted diverse approaches to collect data from 60 landlords and tenants as well as a number of potential and existing indigenous entrepreneurs in the water and sanitation in Nima, a low income slum area in Accra, Ghana. The study found that not only does microfinance investment in water and sanitation enhance access to, and demand for water and improved sanitation, but also create business opportunities for both MFIs and individual entrepreneurs.

Access to Microfinance by Rural Women: Implications for Poverty Reduction in Rural Households in Ghana

In view of the recent evidence that the impact of microfinance is being overstated, this study assesses the causal link between receiving credit from a microfinance institution and poverty reduction among rural households in the Upper East Region of Ghana. Using consumption expenditure as the outcome variable, we test the hypothesis that receiving credit has a poverty reducing effect. Treatment effect estimation technique is used to examine data on 250 beneficiaries and 250 non-beneficiaries from five Districts in the Region. Although the method of study is based on a quasi-experimental approach, the process of selecting the beneficiary and non-beneficiary sample cautiously made an attempt to minimize the potential problems that will arise from contamination, spill-over effects and programme and self-exclusion selection biases. The results support the hypothesis that microfinance has 0.12% poverty reducing effect. Premised on this, we conclude that even in very poor areas microfinance is capable of reducing poverty. Therefore microfinance investment is recommended to broaden the scale and scope of beneficiaries reached and improve delivery strategies to suite context specific characteristics.

Suitability of Microfinance as an Investment Option

This paper investigates investment performance of the most commercially developed microfinance investment funds and it also includes a discussion of major economic characteristics of microfinance investments. When we analyze the relation between microfinance funds' returns and the performance of stock and fixed income markets in developed and emerging economies we find a slightly negative correlation. We show that returns of microfinance investment funds exceed the returns on the market portfolio. Together with reported near-to-zero beta estimates as a proxy for the systematic risk, this means that investment into microfinance investment vehicles may be recommended as a desirable addition to an investment portfolio.

A quantitative model for structured microfinance

Abstract We develop a quantitative model for structured microfinance instruments, which are regarded as an important means for refinancing microfinance institutions. The quantitative credit risk model presented takes into account the peculiarities of microfinance institutions and can be used for pricing purposes and analyzing the risk inherence in different tranches of a structured microfinance investment vehicle. Additionally, we introduce an innovative pricing methodology that abstains from using the martingale probability measure. This approach is more appropriate for illiquid securitized debt of microfinance institutions. In a realistic application we check the robustness and demonstrate the advantages of the model presented.