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Valuing Microfinance Institutions
2006, O'Brien, B.
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This paper provides an overview of valuation methods and guidance on which valuation method to choose

This paper outlines the importance of valuations in the present context of the microfinance sector. The author makes a case for the need of valuations by stating the growth prospects for microfinance through infusion of equity.

The paper explains valuations as follows:

Valuations play an important role in attracting more investment in microfinance since:
- They objectively measure financial performance of MFIs, making data amenable to comparison across MFIs;
- They help in communicating value in a better way to investors;
- They will help in mergers and acquisitions leading to a more rationalized sector.
Methods of valuations are decided on the basis of:
- The position of the owner and the entity being valued;
- Valuations methodologies such as Book Value Multiplier and Discounted Cash Flow (DCF);
- Qualitative and quantitative considerations for valuation.

The paper also presents the findings of a survey conducted by Opportunity International among members of the Council of Microfinance Equity Funds to understand valuations in the sector:

It found that the DCF methodology is most widely employed and investors prefer usage of more than one method to allow for cross-checking.

The paper concludes by suggesting initiatives to encourage valuations in the sector:

Standardize data capturing and recording methods in MFIs,
Widely disseminate valuation methodologies,
Have greater transparency,
MFIs improve marketing effort to attract investment.

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06 Oct 2009
financial analyst


talal alwahidi tamweelcom Jordan

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Journal Title:
Savings and Development

Journal Volume/Pages:
275 - 296

Publisher(s):
Giordano Dell'Amore Foundation