Should we Invest in Microcredit?

This study makes an innovative approach towards rating the profitability of microcredit. A sample consisting of 24 micro-finance institutions (MFIs) operating in different regions worldwide is observed over a period of up to 9 consecutive years. The capacity of those institutions to generate sufficient yields on their credit operations in order to attract rational foreign investors is rated. For this purpose, the realized credit spreads on MFI-loan-portfolios are compared with spreads observable for exchange-traded USD-corporate bonds exhibiting equal levels of risk. The panel design and the investigation of multiple (partly qualitative) external variables influencing loan portfolio returns contribute to a comprehensive investigation of MFI-performance. Indeed, MFI-specific factors are found to be much more decisive for profitability than any environmental conditions