Microfinance, an innovative instrument to diversify risk

The research delves into the financial relevance of microfinance as an instrument at the service of commercial banks and financial institutions to reduce their portfolio risk. After a comprehensive analysis of the different aspects of the microfinance industry, the description of the typical funding process, and a detailed review of both the “popular” and academic literature available on the subject, an empirical study is conducted. This analysis proves that microfinance institutions are less exposed to international market risk than large commercial banks working in emerging contexts,while they are much more subjected to domestic market risk than major commercial banks working. These results have significant implications for those financial institutions that want to diversify their risk, assigning their money to investments of great social importance