Perspectives and a Quantitative Model for Structured Microfinance

This paper examines structured microfinance, and develops a quantitative model for structured microfinance instruments that suffered from the financial crisis of 2008-2009. Microfinance has become an increasingly attractive investment opportunity. Investment instruments include stocks, bonds, microfinance investment funds (MFIFs) and microfinance collateralized debt obligations (MiCDOs).

A web-based survey that involved 132 microfinance investment experts found that structured microfinance is still regarded as a very important means for refinancing microcredit lending. Experts disagreed on how adversely the financial crisis affected MiCDOs, but agreed that they are expected to recover within a few years. Study recommendations include:

• Investment issues must be made as transparent as possible,
• Blind trust in risk neutral pricing approaches must be avoided;
• Results of the risk analysis methodology presented in the paper could be the basis of a possible solution.