Microfinance funds prove worth as de-correlated investment
Microfinance funds prove worth as de-correlated investment
A recent report commissioned by LuxFLAG, the Luxembourg fund labelling agency, on funds that have been granted the LuxFLAG microfinance fund label, reveals that investor interest held firm during the financial crisis and supports the contention that microfinance funds provide an efficient diversification tool for investors.
LuxFLAG commissioned a report to determine the effect of the recent finanical crisis on microfinance investment vehicles (MIV). The main findings of the study are:
- Since LuxFLAG's creation, MIVs have experienced solid growth both in number and assets under management. despite some growth deceleration during the financial crisis, the consistent rise in MIV total assets demonstrates the continued investor interest in this sector;
- The results of the study support the contention that MIVs remain largely de-correlated from other sectors of the capital markets and provide an efficient diversification tool to the investor. Although demand for funding from the underlying MFIs slowed down, leading to a decrease in microfinance portfolios and an increase in cash positions, the LuxFLAG labelled MIVs have demonstrated resilience, posting relatively lower but still positive monthly returns during the worst global financial crisis since the 1920s.
- LuxFLAG labelled MIVs did not face major redemptions during the crisis. Investors remained committed to the labelled MFIs, reinforcing the assumption that Microfinance investors are more willing to take a long term and holistic approach.
The directors and management of LuxFLAG believe that the financial crisis has highlighted the fundamental role of the agency in promoting greater transparency towards investors and confirmed that the LuxFLAG Microfinance Label is a powerful tool for decision-makers who wish to integrate social considerations into their investment policy and decision-making processes, with a view to creating a more responsible microfinance sector.
Dowload a copy of the full report.