The main aim of this thesis is to contribute to the discussion on the advantages and disadvantages of microfinance commercialization from an investor’s perspective. Whereas most research has focused on whether microfinance helps to get people out of poverty, the lack of studies on microfinance investment motivates us to investigate microfinance from an investor perspective, using tools and techniques from mainstream finance research.
The main question is: What motivates investors to invest in microfinance? One motivation can be purely financial. Therefore, we investigate whether microfinance offers diversification advantages and what determines the risk of a microfinance investment. Investors can also be socially motivated to invest in microfinance. Yet, to the extent that they face a trade-off between outreach to the poor and financial returns, investors have to balance return, risk and outreach. We try to find out to what extent they can optimally balance their portfolio with respect to these three objectives.