While the valuation of microfinance institutions (MFIs) may be more of an art than a science, the practice within the equity investment community remains opaque, inconsistent and overly complex. This paper summarizes the challenges impact investors face when valuing MFIs--from which methodologies to use and what assumptions to make, to how to factor in the social mission and fintechs. There is an urgent need for more shared, comparable and reliable data to effectively benchmark impact investments.
<h2>Why This Matters</h2>
With MFI valuations, the stakes are high<span style="font-size: 11pt;font-family: 'Calibri','sans-serif'">—</span>a high valuation may signal an overheating market while a low valuation can represent a missed opportunity. As <span class="wf_file_text">MFIs</span> and other institutions evolve and mature, and as social investors look beyond the known pool of investors for exit options, reliable valuation data and practices will only gain in importance.

Barring more transparent, consistent and precise valuation data and more robust valuation methodologies, microfinance will remain a less mature asset class and social investors will be limited to a relatively small pool of known actors with whom to transact.
<h2>Looking Forward</h2>
Impact investors need more reliable valuation data and standard valuation methods to make sound investment decisions and to pursue their financial inclusion objectives. The <a href="programs-a-projects/investing-in-inclusive-finance/financial-inclusion-equity-council">Financial Inclusion Equity Council</a> (FIEC) is working to address this need by developing a valuation database for its members to share valuation data confidentially and anonymously.
<h4><a class="wf_file" href="storage/documents/Valuing_MFIs_Brief_Final__Arabic.pdf"><span class="wf_file_text">Download the Report (Arabic) &gt;&gt;</span></a></h4>
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Valuing Microfinance Institutions

Financial Inclusion Equity Council

Impact Investing

Valuation

Report

This annual Global Microfinance Equity Valuation Survey, published jointly by CGAP and J.P. Morgan, provides benchmarks for the valuation of microfinance equity, to promote market transparency and identify industry trends. It examines the landscape of private equity (PE) deals and valuation trends in the public market for Lower Income Finance Institutions (LIFIs) in developing countries.

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Valuation

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Deborah Drake

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Valuing Microfinance Institutions

Volume Growth and Valuation Contraction