Impact of COVID-19 pandemic on diversification: Evidence from microfinance

Abstract

In previous global financial crises, microfinance institutions (MFIs) provided a significant diversification benefit to global portfolios. However, since the COVID-19 pandemic significantly impaired the microfinance industry's traditional modes of operation and threatened the survival of microentrepreneurs’ businesses, the diversification benefit was not stable but rather fluctuated during the crisis period. One year before the pandemic, MFIs provided significant diversification benefit; however, during the first year of the pandemic, this benefit disappeared completely and continued to be nonexistent during the second year of the pandemic. During the last year of the pandemic, the diversification benefit became statistically significant again.