Volume Growth and Valuation Contraction: Global Microfinance Equity Valuation Survey 2012

This 2012 annual Global Microfinance Equity Valuation Survey Report, published jointly by CGAP and J.P. Morgan, provides benchmarks for the valuation of microfinance equity, to promote market transparency and identify industry trends. The report examines the landscape of private equity (PE) deals and valuation trends in the public market for Lower Income Finance Institutions (LIFIs) in developing countries. Findings include:

• MFI asset quality began to recover from a crisis of client overindebtedness and unsustainable growth in India, Bosnia, and Nicaragua toward the end of 2010;
• This recovery continued to bring higher microfinance equity transaction volumes into 2012;
• PE markets experienced an increase in deal activity in 2012 from the slower pace of 2010;
• Large transactions in Latin America and the Caribbean and strong flows from development finance institutions in India drove the increase in both volume and number of transactions;
• Equity valuations continued to decline in 2011 from their peak in 2010;
• This is likely due to lingering uncertainties about asset quality in some markets and continued public scrutiny;
• Comparables in the public market also declined with a drop in the average valuation of the LIFI.