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Contribution Details
| Type | Studies and Reports Commissionned |
| Scope | Discipline-based scholarship |
| Title | Equity valuation of microfinance institutions: an update on methods and trends |
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| Date | 2017 |
| Abstract Text | The majority of equity investments in microfinance institutions (MFIs) in developing economies are private placements. This paper suggests appropriate techniques with which to value MFI equity, drawing from the extant literature and valuation practices disclosed by MFI equity investors. It derives that the maturity of the MFI in question should be the first criterion of choice and that other aspects, in particular the existence of deposits, use of market-to-market-accounting, investor perspective, and the availability of information, should also be considered. The paper summarizes the available price multiple data of MFI equity transactions, including data found in the literature and data collected directly from members of the Financial Inclusion Equity Council in 2017, so as to provide an update of industry benchmarks for MFI equity investors. Finally, the paper derives value drivers for price multiples based on a standard regression analysis using the available data, showing that the transaction size and being located in the Asian region have positive effects on price-to book value multiples. |
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| Funders | FIEC (Financial Inclusion Equity Council), Boston/MA, USA |
| Keywords | microfinance institutions, non-bank financial institutions, private equity, value of firms |