On the performance of microfinance investment funds - A quantitative study of the financial performance of 83 funds from 1998 to 2015

Abstract: This thesis investigates the financial performance of microfinance investment funds (MFIFs), which are social impact investments investing in microfinance institutions (MFIs). Given that microfinance customers live in developing regions and pursue entrepreneurial businesses, the returns of MFIFs are supposedly uncorrelated with developed markets, and therefore marketed as providing investors with a diversification benefit. Constructing an unbalanced panel data set consisting of 83, both fixed income and equity, mutual funds ranging from 1998 until 2015 we test whether these funds are correlated with developed markets or not by using the Jensen's alpha CAPM. In addition to the stand-alone performance analysis of these funds, we use the matched pairs technique to compare the performance of MFIFs to other, more conventional, socially responsible mutual funds. Our findings are in line with previous, smaller, studies and support the claim that adding MFIFs to a portfolio of developed market assets do provide a diversification benefit. Moreover, these funds do not indicate worse performance than other socially responsible investments (SRIs).