Microfinance, defined as the provision of financial services in very small individual transaction amounts to poor people in developing economies, has attracted attention in recent years from a growing range of supporters as an effective means to promote human well-being and grass-roots economic development, which may also provide attractive returns on equity for the service providers.
"MFI" stands for "Microfinance Institution". These institutions specialize in providing microfinance services and evolved from humanitarian efforts to meet the financial needs - principally the credit needs - of such people.
MFIs take many possible legal forms – non-profit, non-governmental organizations; member-owned cooperatives/credit unions; non-bank financial institutions; and licensed, deposit-taking banks, with the latter two forms most commonly being shareholder-owned.
Experience has shown that MFIs, to be truly effective in the long-term in meeting the needs of their communities, need to be financially self-sustaining; that is, they need to produce a financial surplus to their operating and funding costs.
The WSAS MFI Shareholder Value Indexes (WSAS MFI SVIX) are designed to offer uniquely consistent measures of changes over time in the value of shareholders’ investments in the equity of a broad sample of microfinance institutions (MFIs). No other such measures exist.
The WSAS MFI SVIX consist of a series of annual ‘Vintage Indexes’ (indexes measuring changes to shareholders’ value, by year of inception of their investment in a set of MFIs), and a Composite Index (blending investment results across the annual Vintages).
A full explanation of the WSAS MFI SVIX can be found in the WSAS SVIX Methodology, available here
The large & fast-growing body of investors, their advisors, investment bankers and other researchers in MFI equity can look to the WSAS SVIX series for benchmarking their MFI equity portfolios and for analytic purposes.
Reasons for the growth in equity investing in MFIs are:
Further, studies have indicated that the recent financial results of MFIs ‘ operations tend to be largely insulated from domestic economic downturns, and that their financial results have been largely uncorrelated to those of asset classes which are commonly part of investors’ portfolios, suggesting MFI equity investment can help diversify the sources of risk and return to those portfolios[i].
In short, it seems equity investors “could do well while doing good” by investing in carefully selected MFIs, or simply do well financially, if doing good wasn’t an investment requirement.
[i] See A. Gonzalez/MIX, “Resilience of Microfinance Institutions to National Macroeconomic Events: An Econometric Analysis of MFI Asset Quality“ http://www.themix.org/publications/resilience-microfinance-institutions-macroeconomic-events ;, Krause & Walter, “Can Microfinance Reduce Portfolio Volatility?” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=943786 and also Galema et.al, “ International Diversification and Microfinance”, http://www.microfinancegateway.org/gm/document-1.9.34326/56904.pdf .
The WSAS MFI SVIX are good indicators of equity investors' performance, but they naturally have limitations. These include: