Shedding Light On Microfinance Equity Valuation: Past & Present


Authors
Nick O’Donohoe, Frederic Rozeira de Mariz, Elizabeth Littlefield, Xavier Reille and Christoph Kneiding

Research Organisation
J.P. Morgan

Report Date
Feb. 1, 2009

Document summary

Microfinance institutions (MFIs) will be affected by the global financial crisis. Private equity valuations for MFIs have varied widely, but publicly listed Low-Income Finance Institutions have outperformed traditional banks. Investors however should not value MFIs in the same way as with traditional banks. Book value and earnings multiples are the most widely used valuation tools but the residual income method is also recommended. Transaction value and net income growth are the main valuation drivers. Larger MFIs especially with diversified funding sources are best positioned to manage the crisis. The long-term outlook for equity investment in the microfinance sector is positive.

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