Microfinance Investment Funds: Attractive Investments for Profit-Oriented Strategies and Social Impact

Abstract

This thesis analyzes microfinance investment funds (MFIFs) from a purely financial profitability perspective. As we expand upon in Section 2.3, MFIFs are investment funds that primarily target institutions in developing countries which give small loans to micro-entrepreneurs at reasonable interest rates. These funds often have a dual mission of helping micro-entrepreneurs and generating profits. This dual mission often means that investors primarily focused on financial performance look past them as potential investments, limiting the amount of capital invested in MFIFs to a tiny percentage of the world's investment capital. We first explain the role and importance of loans from microfinance institutions (MFIs) as ways for entrepreneurs in developing nations to acquire capital. We then explain how MFIFs are vital in providing money for the MFIs to grow and reach more people. We then compare the MFIFs to benchmark indices, analyzing their historical data and developing a regime-switching model to analyze potential future performance. We conclude that MFIFs provide an attractive investment even for investors indifferent to the social impact of their investments and should legitimately be considered a vital component of many profit-oriented investment strategies.