Shedding Light on Microfinance Equity Valuation: Past and Present

40 Pages Posted: 17 Jun 2015

See all articles by Nick O'Donohoe

Nick O'Donohoe

JP Morgan

Frederic de Mariz

Columbia University

Elizabeth Littlefield

World Bank - Consultative Group to Assist the Poor (CGAP)

Xavier Reille

World Bank - Consultative Group to Assist the Poor (CGAP)

Christoph Kneiding

World Bank - Consultative Group to Assist the Poor (CGAP); German Institute for Economic Research (DIW Berlin)

Date Written: February 1, 2009

Abstract

This report provides benchmarks for valuation of microfinance equity, both private and publicly listed. We use a unique sample of 144 private equity transactions and 10 publicly listed microfinance institutions. MFIs will certainly be affected by the financial crisis ricocheting across the globe, but we believe that the sector is fundamentally sound. Larger institutions, especially those with diversified funding sources, such as retail deposits, are best positioned to manage the effects of economic and financial contraction. Valuations may change, but we believe the long-term outlook for equity investment in microfinance is positive. Investors should not value MFIs the same way they value traditional banks. We highlight five characteristics that differentiate MFIs from traditional banks, and justify a slightly different valuation approach: a double bottom line that aims for both social and financial returns, excellent asset quality, high net interest margins (NIMs), high operating costs, and longer term funding available from developmental investors. We focus our analysis on book value and earnings multiples, and also on the residual income method.

Keywords: Microfinance, Valuation, Private equity

JEL Classification: G15, G21, E51

Suggested Citation

O'Donohoe, Nick and de Mariz, Frederic and Littlefield, Elizabeth and Reille, Xavier and Kneiding, Christoph, Shedding Light on Microfinance Equity Valuation: Past and Present (February 1, 2009). Available at SSRN: https://ssrn.com/abstract=2619149 or http://dx.doi.org/10.2139/ssrn.2619149

Nick O'Donohoe

JP Morgan ( email )

London
United Kingdom

Frederic De Mariz (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Elizabeth Littlefield

World Bank - Consultative Group to Assist the Poor (CGAP) ( email )

1818 H St NW
Washington, DC
United States

Xavier Reille

World Bank - Consultative Group to Assist the Poor (CGAP) ( email )

1818 H St NW
Washington, DC
United States

Christoph Kneiding

World Bank - Consultative Group to Assist the Poor (CGAP) ( email )

1818 H St NW
Washington, DC
United States

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

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