Discovering Limits. Global Microfinance Valuation Survey 2011

Abstract

This report is the result of a partnership between CGAP (Consultative Group to Assist the Poor) and J.P. Morgan with the support of the Council of Microfinance Equity Funds (CMEF). It combines CGAP and CMEF knowledge of microfinance with J.P. Morgan’s equity research skills in emerging markets. This is the third edition in a series begun in 2009. Our objective is to provide benchmarks for valuation of microfinance equity, both private and publicly listed, drawing on two data sets: a sample of 238 private equity transactions between 2005 and 2010 (compared to 200 transactions in last year’s edition of the report), which represents the largest such data set gathered to date, and data on 11 publicly traded lower income financial institutions (LIFIs).

This year’s edition is entitled “Discovering Limits” as the recent experience of unsustainable growth, and the risk of client over-indebtedness in several countries, has given the sector a better appreciation of the limits of growth. Microfinance valuations in the public and private markets are starting to converge with those of traditional financial institutions. Despite a challenging environment, the equity market remained vibrant in 2010 with US$205mn in private equity investments captured by our survey. Latin America and the Caribbean represented the largest share of investments, with 56% of the total transaction value in 2010. Equity prices continue to be supported by a broad base of public and private investors with a long-term commitment to the asset class.

Keywords: Microfinance, Valuation, Private Equity, Emerging Markets