These microloans served as their investment and according to MFIs worldwide, business with these entrepreneurs is surprisingly easy. They reported that repayment levels on loans are high and the pride of the small entrepreneurs has spurred high repayment rates.
However, there is an argument raised by the microfinance fund managers. They argued that investments in MFIs are not correlated with broader macroeconomic indicators. And because of this, they are more attractive. An innovative working paper from the Stern School of Business at New York University has tried to demonstrate this for the first time. Basically, the idea of the authors is to compare micro-lenders with commercial banks operating in the same country. They assumed six key variables that would affect the performance of both micro-lenders and commercial banks. This includes the percentage change in their net operating income; return on equity; profit margin; percentage change in total assets; percentage change in loan portfolio; and the change in the portfolio at risk. The tentative conclusions, because of the limited available data on micro-lenders, suggest that micro-lenders are less correlated with equity indices than are commercial banks against one or more parameter. Micro-lenders are also far less correlated than are comparable commercial banks with domestic macro conditions. They indeed represent lower country risk than shares in banks.
"Its hard to separate the financial return from the social return of microfinance investing, but some of this data is very compelling." These are the words of Robert Weissenstein, chief investment officer of private banking in the Americas for Credit Suisse, at e recent New York conference where the working paper was presented.
Managing director at Developing World Markets, Roger Frank cited the case of Argentina fostering an enormous growth in microfinance because people really had no alternative. Furthermore, during an