Investing in Microfinance (eBook)

Dr. Philipp M. Becker obtained his doctorate under the supervision of Prof. Dr. Pascal Gantenbein at the Swiss Institute of Banking and Finance, University of St. Gallen (Switzerland). He works in the asset management industry, focusing mainly on asset allocation and research.

Acknowledgements 6
Brief Contents 7
Table of Contents 8
Abstract 12
Zusammenfassung 13
List of Figures 14
List of Abbreviations 17
1 Introduction 19
1.1 General motivation 19
1.2 Research questions 21
1.3 Outline 21
2 Asset Allocation Framework 23
2.1 Asset allocation 23
2.2 Portfolio theory 26
2.2.1 Mean-variance concept 27
2.2.2 Shortfall concept 30
2.3 Investors’ utility preference and categorization 34
2.3.1 Private investors 35
2.3.2 Institutional investors 37
2.4 Asset allocation requirements 39
2.5 Summary 40
3 Scenario Approach in Asset Allocation 42
3.1 Idea of scenario analysis 42
3.2 The scenario process 45
3.3 Critical assessment of the scenario approach 48
3.4 Examples of scenario analyses 51
3.4.1 Scenario analysis “The future of the global financial system” 52
3.4.2 Scenario analysis “European energy security 2020” 55
3.5 Combining scenario approach and asset allocation 59
3.6 Summary 63
4 Microfinance 64
4.1 Introduction to microfinance 64
4.1.1 Evolution of microfinance 64
4.1.2 Definitions and categories 65
4.2 Microfinance market from an investment perspective 67
4.2.1 Market overview 67
4.2.2 Microfinance users 69
4.2.3 Microfinance institutions 71
4.2.4 Microfinance investment vehicles 75
4.2.5 Microfinance service providers 78
4.3 Market situation 80
4.3.1 Current market conditions 80
4.3.2 Impact of financial crisis 83
4.3.3 Market potential 86
4.4 Microfinance investments – insights and quantitative analysis 88
4.4.1 Dexia Microcredit Fund 88
4.4.2 responsAbility Global Microfinance Fund 92
4.4.3 Structured products 93
4.4.4 ProCredit Holding 94
4.5 Microfinance investments in an asset allocation framework 95
4.6 Summary 97
5 Scenario Process Microfinance 99
5.1 Setup 99
5.1.1 Defining the goal 99
5.1.2 Methodology 100
5.1.3 Setup of process 101
5.1.4 Team selection and participants 103
5.2 The process 107
5.2.1 Preparations 107
5.2.1.1 Field of study 107
5.2.1.2 Introduction evening 107
5.2.2 Workshop I 108
5.2.2.1 Impact factors 108
5.2.2.2 Factor projections 109
5.2.2.3 Classification of descriptors 110
5.2.2.4 Scenarios 111
5.2.2.5 Wild card scenario and incidents 120
5.2.3 Workshop II 121
5.2.3.1 Derivation of implications 122
5.2.4 Closing day 128
5.2.4.1 Indicators and signposts 128
5.2.4.2 Scenario process feedback 129
5.3 Implications of scenario process microfinance for asset allocation 131
5.3.1 Parameters for the asset allocation framework Return estimate 131
5.3.2 Costs of a scenario process 135
5.4 Summary 135
6 Asset Allocation Model 137
6.1 Data and assumptions 137
6.1.1 Selection of asset classes and data 137
6.1.2 Input parameters for portfolio optimization 140
6.1.2.1 Return estimates 140
6.1.2.2 Risk and correlation parameters 141
6.2 Asset allocation optimization excluding microfinance 146
6.3 Asset allocation optimization including microfinance 147
6.3.1 Optimization with quantitative microfinance parameters 147
6.3.2 Optimization with qualitative microfinance parameters 149
6.4 Implication for asset allocation 150
6.4.1 Cross-comparison of portfolios 150
6.4.2 Cross-comparison of portfolio backtests 153
6.4.3 Implications for investors 154
6.4.4 Microfinance investment limitations 156
6.5 Summary 156
7 Conclusion 158
7.1 Summary of results 158
7.2 Outlook and implications 160
Bibliography 162
Interviews 171
Appendix 172