WORLD - REPORTS - Discovering Limits: Global Microfinance Valuation Survey 2011

Discovering Limits: Global Microfinance Valuation Survey 2011
Jul 2011, Reille, X., Rozas, D. & Mariz, F.

Presenting microfinance equity valuations

 

This report, the result of a collaborative effort between CGAP and J.P. Morgan, presents valuation of microfinance equity, of both private and publicly listed microfinance companies, for the year 2010 for eight countries. It also predicts the pattern for 2011.

The report notes that many countries enjoyed significant investor support, with 2010 book multiples remaining above the 4 year median value for nearly all countries on the list. Findings of this study include:

• Latin America and the Caribbean represented the largest share of investments, 56% of the total transaction value;
• The public markets in 2010 set a major milestone, with the IPO of SKS, the largest MFI in India raising US$350 million in August, 2010. But, the social and political crisis in Andhra Pradesh has pushed the stock down by 45% from its listing price;
• Over the long run, the LIFI (Lower Income Finance Institutions) index has largely outperformed traditional banks both globally and in emerging markets.

The report predicts that in 2011, it will be difficult to see new flagship IPOs as the sector is still emerging from crisis. Mergers and acquisitions in the private market will continue, especially in Latin America. More price variations between countries will be seen as valuations become guided by company and market specifics.
 
 The report manages the LIFI index.  The LIFI Index is a market cap–weighted index of 11 companies, encompassing  arious geographies and business models. The index includes banks that are not exclusively offering working capital loans to micro-entrepreneurs, broadening the scope to include consumer loans and other financial services.

The resulting weighting of the index only serves to remind us that Indonesia combines the most mature and competitive market for microfinance (Bank Rakyat was founded in 1895) with an especially well-developed stock market (unlike Bangladesh, for example).

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