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Research Microfinance: Not as Advertised? Microfinance, which provides small loans to people living in the world's most impov- erished regions, has been described as an antidote to poverty. But in his paper that recently appeared in the Stanford Social Innova- tion Review, Aneel Karnani, an associate professor of strategy at the University of Michigan's Ross School of Business in Ann Arbor, argues that microfinancing practices may actually make life worse for the poor. In "Microfinance Misses Its open a garment factory that employs 500 people. He reasons that the large fac- tory can do more to "enrich not only its owners, but also its workers." No doubt, many pro- Aneel Karnani ponents of microfinance may disagree with Karnani's assessment. Still, he con- cludes that resources would be better diverted away from microfinance efforts and toward "larger enterprises in labor- intensive industries." The full paper is available at www.ssireview.org/site/printer/ microfinance_misses_its_mark/. Mark," Karnani analyzes macro- economic data and cites current research to measure the true impact of microfinancing. For example, Karnani concurs that research shows that small loans empower women— they improve their mobility, bargain- ing power, status in their communi- ties, and self-esteem. However, he argues that microfinancing funds only limited entrepreneurial efforts, diverting energy and funding away from larger entrepreneurial enter- prises that could impact a country's economy more positively through job creation and tax rev- enue. "Most microcredit cli- ents are not microentrepre- neurs by choice," he writes. "They would gladly take a factory job at reasonable wages if it were available." To make his point, Karnani compares a micro- lender who loans $200 each to 500 women to set up individual sewing enterprises to a bank lending $100,000 to a single entrepreneur to 52 BizEd SEPTEMBER/OCTOBER 2007 In Mutual Funds, Connections Matter When it comes to social connections, portfolio managers bet on what— and whom—they know. A recent study finds that mutual fund manag- ers often invest in companies where they know someone from their undergraduate or graduate pro- grams. Not only that, those invest- ments will often perform better than other investments where no such connections are present. The study, "The Small World of Investing: Board Connections and Mutual Fund Returns," was con- ducted by three assistant professors of finance, includ- ing Lauren Cohen of the Yale School of Management in New Haven, Con- necticut; Andrea Frazzini of the University of Chi- Lauren Cohen cago's Graduate School of Business in Illinois; and Christopher Malloy of the London Business School in the U.K. The research focused on 85 percent of mutual fund assets under active management between 1990 and 2006. Cohen, Frazzini, and Malloy found that a stock's performance improved directly with the fund man- ager's level of connection to the company. Managers earned an aver- age 11.7 percent annual return in companies where they had no con- nection. That return increased as managers' level of connections increased, up to 20.1 percent in com- panies where the manager had gone to school with a senior executive. The researchers are quick to point out that their study is not evi- dence of wrongdoing. They specu- late that, when managers have school connections with a compa- ny's executives, they may simply know more about the merit of a company and its leaders. The study already has sparked the interest of the U.S. Security and Exchange Commission and the National Bureau of Economic Research. It currently is under review by the Journal of Political Economy. U.K. Companies Fail To Capitalize on Talent British businesses are failing to make the most of their most talented employ- ees, according to recently released research from the U.K.'s Cranfield School of Management. The survey, done in conjunction with recruit- ment outsourcing company Capital Consulting, found that 51 percent of U.K. businesses have not implement- ed a talent development program to