2010 Vol. 2

Pansy Yang, Ph.D. (Bio)
Executive Director of the Fink Center for Finance & Investments

Microfinance is the practice of lending small amounts to those who have traditionally lacked access to banking and other forms of credit. Microloans can help start or expand businesses in the most impoverished places that banks shun, such as in the rural parts of India, China, Africa, as well as within the US.

Microfinance has been internationally recognized over the last decade. Muhammad Yunus received the 2006 Nobel Peace Prize for his efforts to create economic and social development. The John Bates Clark Medal, which has been awarded biennially from 1947 on to the best American economist under 40, was given this year to Esther Duflo for her work in microfinance. It has even made its way to Congress, sparking debate on whether some institutions are overcharging the poor. And yet despite the giant advances made over the last 30 years, there still remains a lot to be uncovered.

Mark Garmaise, Associate Professor in Finance at UCLA Anderson, provides the academic perspective this issue. His paper postulates that lending terms in the microfinance industry are often influenced by non-market political considerations, and that microfinance institutions (MFIs) that reside in host nations who improve their relationships with the nations of their lenders benefit from reduced borrowing costs.

Elisabeth Rhyne, Managing Director of the Center for Finance Inclusion at ACCION, discusses the evolution of microfinance from merely lending to a financial inclusion vision that encompasses savings, insurance, payments, as well as addresses the quality of services, such as convenience and affordability, to name a couple. She explores the challenges that arise from the expansion of microfinance and the important questions that are raised.

Please send your comments >>


Mark Garmaise (Bio)
Associate Professor of GEM

In this paper, we investigate the effects of providing credit to financial institutions at below-market interest rates on the operational efficiency and lending activities of microfinance institutions (MFIs) around the world. We employ an instrumental variable approach based on the international relations between the host country of an MFI and the nations of its lenders. We show that improvements in these relations lead to the supply of politically-motivated subsidized financing that is plausibly unrelated to the characteristics of an individual MFI. In this sense, shifting political relationships may be viewed as an exogenous source of variation in the provision of cheap credit.

We use these political shocks to the supply of subsidized financing to study three questions. First, does cheap credit affect the efficiency of an MFI's operations? Second, do MFIs that receive below-market financing expand their lending? Third, does low cost financing have a special impact on young, entrepreneurial MFIs, potentially altering their medium-term growth path?

We first demonstrate that an increased similarity in the voting patterns of two countries in the U.N. General Assembly is strongly associated with reduced interest rates for loans between lenders and MFIs in those countries in the following year. Specifically, we make use of a well-known bilateral measure from the political science literature1 that captures the `macro' affinity between countries in regressions explaining `micro' interest rates at the loan and MFI level.



Elisabeth Rhyne
Managing Director, Center for Financial Inclusion, ACCION International

 A spotlight on microfinance a decade ago would have illuminated a small grassroots movement, financed mainly by charities and foreign assistance agencies. That was then.

Today, microfinance has become a global force with the audacious goal of opening financial systems to serve the low income majority of the world’s population. Microfinance demonstrated that the poor are bankable and can be served profitably and at scale. By 2008, the 1,100 microfinance institutions (MFIs) reporting to the Microenterprise Information Exchange (MIX), a data service, were reaching 86 million clients with loans and 96 million with deposits. Most of clients had no prior access to formal financial services. The global microfinance loan portfolio was about $40 billion, with total deposits of about $25 billion. These numbers are all the more impressive when considering that the median loan was only $525 and the median savings account was $145. It has taken more than two decades of dedicated industry-building by microfinance pioneers like ACCION International, Opportunity International, Grameen Foundation and others to bring this about.

Today’s microfinance industry is increasingly commercial, both in operations and in funding. MFIs structured as commercial banks or finance companies serve 60 percent of all borrowing clients, while NGOs continue serving about 35 percent (credit unions and rural banks serve the remainder).



Laurence D. (Larry) Fink ('76), BlackRock's chairman and CEO, returned to the UCLA campus Thursday, April 22 and offered a sobering view of the country's financial industry as well as prescriptions for restoring its vitality and the confidence of the nation.

Fink, the namesake (along with his wife Lori) of Anderson's Fink Center for Finance and Investments, joined UCLA Anderson Dean Judy Olian on the Korn Convocation Hall stage for a wide-ranging conversation before a standing-room-only audience. In her opening remarks, Olian described Fink, whose company manages over three trillion dollars in assets as "a giant on Wall Street" whose advice is sought by other CEOs and governments. She reminded the mostly-student crowd that Fink's success was "all because of UCLA Anderson."

"We were a society, from the president to the individual, that allowed us to lived way beyond our means, and we had a financial system that encouraged it, and we encouraged it to a point where we had a cataclysmic fall," Fink said. "We were very close to ... going into another depression. We were almost at the cusp of a severe breakdown where society as we know it would have changed. It is time now for us to rebuild a system in which we are not allowing ourselves to be in that position again."



The Aspen Institute/UCLA April 23, 2010

On April 23, 2010, a group of twenty-four senior law, economics, finance and accounting faculty and business practitioners was jointly convened by The Aspen Institute, the UCLA School of Law and the UCLA Anderson School of Management for an off-the-record roundtable discussion on the topic of short-termism in business and the capital markets.

The resulting discussion was wide-ranging. Participants were united in their concern for the healthy functioning of the U.S. financial system, and their interest in helping to create solutions for economic recovery in the wake of an unprecedented financial crisis. BlackRock CEO Laurence Fink opened the day with cogent remarks on the state of the financial system and the broader economy.

The expertise of the participants was deep and varied, and their opinions were diverse both on the nature and extent of short-termism in business and the markets, and also about whether and to what degree short-termism is problematic. The purpose of the roundtable was to generate interest in and dialogue around the topic of short-termism rather than to yield a single consensus or coherent set of recommendations. However, the discussion circled around several key elements that recurred throughout the discussion.



This summit will bring together key players in the private equity space to discuss today’s most pressing issues, featuring cutting-edge academic research as well as lively panel discussions with heavy emphasis on audience participation. Confirmed panelists include Morten Sorensen (Columbia Business School), Per Stromberg (Stockholm School of Economics, University of Chicago Booth School of Business) and Richard Henkel (Arizona State Retirement System).


The ASAM class of 2010 began the year with three strategies; F-Score, Earning Announcement Return (EAR), & Tactical Asset Allocation (TAA). While the F-Score strategy has a long successful history as an ASAM strategy, both EAR and TAA were new at the beginning of the year and were in various stages of development throughout the year. The incoming class chose to dissolve the Parametric strategy due to student interest in other quantitative strategies.

The recovery in global capital markets provided impressive results for the value-based F-Score strategy, while hurting the active return of the developing strategies, which were mainly in cash throughout the year. Given the fact that F-Score only comprises approximately 33% of the total ASAM portfolio, the aggregate ASAM fund underperformed relative to all equity benchmarks. Despite the large allocation to cash, both the EAR and the TAA strategies made huge progress during the year and are now both fully implemented and actively trading.



Wade Hickok (MBA 2011)

On the morning of Friday, January 8th, nine fellows of UCLA Anderson’s quantitative investment group (ASAM) were greeted in Omaha, Nebraska by bone-chilling record low temperatures. However, the weather was far from everyone’s mind. This would be a day to remember – the day that the ASAM fellows would meet the legendary investor, Warren Buffett.

After taking a brief tour of Nebraska Furniture Mart (a Berkshire Hathaway Company), the ASAM bus set out for the big meeting. On the way, we cruised through an unassuming upper-middle class neighborhood, when suddenly the bus came to crawl. “See that house to the right? That’s where Mr. Buffett lives,” the bus driver informed us. Apparently he purchased the house 35 years ago and lives there to this day. It wasn’t a small house, but it wasn’t at all a house where you’d expect a billionaire to live either. Buffett’s philosophy for living was apparent and congruent in every aspect of his life. This was only the beginning.

Our first impressions of Berkshire Hathaway were no different. The largest holding company in the United States occupied a mere two floors in an average downtown building. It was unbelievable. Then, following signs that led us through a corridor, the ASAM group came face-to-face with the Oracle of Omaha himself, Warren Buffett. He was smiling and speaking with students from other prestigious business schools. Following Mr. Buffett’s instructions, we grabbed a Cola-Cola soft drink (a Berkshire Hathaway holding), and took our seats in the very first rows of the small conference hall.



Faculty Highlights

Mark GrinblattThe WFA 2010 Annual Meetings will be held June 20 - 23, 2010 at the Fairmont Empress, Victoria, British Columbia, Canada. Mark Grinblatt is this year’s distinguished speaker. The WFA Annual Meetings are one of the two major gatherings of premier finance academics from around the globe. Over 600 people attend the conference each year.

The WFA is a professional society administered in the United States and Canada for academicians and practitioners with a scholarly interest in the development and application of research in finance. Its purpose is to serve as a focal point for communication among members, and to improve teaching and scholarship, and to provide for the dissemination of information, including the holding of meetings and the support of publications.

Professor Mark Grinblatt Receives Citibank Teaching Award
Mark Grinblatt, J. Clayburn LaForce Professor of Finance, has been awarded the 2010 Citibank Teaching Award, voted upon by a committee of faculty members, as the school’s most outstanding MBA teacher.

Mark GrinblattWe are delighted to inform you that Hanno Lustig has been promoted to Associate Professor with tenure. Hanno started his career at the University of Chicago and later was part of the Department of Economics at UCLA, before joining our Finance faculty in 2008. Hanno’s expertise lies at the intersection of macro-economics and finance, including studying the linkages between the housing markets and financial markets, clearly a very important research area. He is a dedicated and very flexible teacher, and an outstanding citizen within the school and in his profession.

Professor Hanno Lustig Receives NASDAQ OMX AWARD for the Best Paper in Asset Pricing
Hanno Lustig along with co-authors Yi-Li Chien (Purdue University) and Harold Cole (University of Pennsylvania) were awarded the NASDAQ OMX Award for Best Paper in Asset pricing for their working paper titled “Is the Volatility of the Market Price of Risk due to Intermittent Portfolio Re-balancing?”

The present version of the paper can be found at


Bhagwan Chowdhry

Professor Chowdhry recently proposed a Financial Access at Birth (FAB) Campaign in which every child born in the world is given an initial deposit of $100 in an online bank account to guarantee that everyone in the world will have access to financial services in a few decades. The goal of the FAB Campaign is to bring governments, banks, insurance companies, technology and telecom companies, microfinance organizations, charitable foundations, health-care organizations , educational organizations and academics together to devise best strategies for implementing the plan of providing Financial Access at Birth for every child born in the world. The campaign has received attention from the press, including The Economist, The Huffington Post, and Smart Money.

For more information, please visit http://www.fabcampaign.org/.


The Fink Center for Finance & Investments
UCLA Anderson School of Management
110 Westwood Plaza, Los Angeles, CA 90095