Benchmarking Microfinance Against Other Asset Classes
Is microfinance an asset class? No. It's like "banking" in that regard.
What defines an asset class? Similar characteristics; similar behavior; volume.
Do MF "asset classes" behave distinctly? There isn't enough data, volume, to develop proper benchmarks for measuring behavior.
But MFIs show asset growth despite volatility of other assets, which suggests that they behave differently than other asset classes. "That suggests distinct behavior." MFI net income shows steady growth when other markets have not had steady performance.
MFIs following conservative leveraging policies. Debt/equity ratio remains about 4.0x. Arrears remain in check despite fast growth.
Research shows microfinance displays low correlation to other emerging market investments, which suggests that microfinance can decrease portfolio volatility.
The business than an MFI does is very different from what you see in other asset classes. More resilient, adaptable. Customers are not necessarily integrated into the formal financial system, which may explain some of the low correlation to other markets.
I'm an investor in microfinance.
Are there spillovers of the subprime disaster affecting availability of funds? Is microfinance making the same mistakes that led to the subprime disaster?
In the end, I think microfinance is a great opportunity for us, whether it's an asset class or not.
Peter: In the end, it doesn't matter whether it's a separate asset class or not, as long as you can invest in it and it does good things.