July 2017
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2 Reads
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3 Citations
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Publications (7)
January 2011
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5 Reads
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10 Citations
SSRN Electronic Journal
January 2010
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12 Reads
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8 Citations
SSRN Electronic Journal
The past year held many challenges for microfinance: not since the Asian crisis of the late 1990s has the sector faced a more difficult economic environment. Yet despite these conditions, most micro-finance institutions (MFIs) proved to be up to the challenge. Beginning in January 2009, MFI portfolio delinquency levels began to deteriorate rapidly, with loans past due over 30 days (portfolio at risk [PAR30]) jumping from a median of 2.2 percent to 4.7 percent during the first five months of 2009, while profitability dropped from a median return on equity (ROE) of nearly 18 percent at year-end 2008 to 6 percent by May 2009. However, since June 2009 delinquency has moderated and profitability levels have come back to stabilize at 4 percent for PAR30 and 10 percent for ROE, respectively. Most MFIs continue to maintain solid reserve and capitalization levels, with equity ratios unchanged from the 18-20 percent range established over the past two years. This occasional paper aims to shed new light on equity valuation trends in microfinance, which must necessarily begin with a detailed examination of how MFIs have coped during the recent economic crisis. Accordingly, the first part of the paper is devoted to MFI asset quality and its impact on microfinance profitability. Next, the authors examine trends in valuation benchmarks for microfinance private equity transactions and analyze the key drivers behind these valuations. This section also delves into the recent growth in transaction volume and valuation multiples in India, which had a particularly active market in 2009. Finally, the authors seek to place the microfinance equity market within the context of the broader equity market, using comparisons with publicly listed low-income financial Institutions (LIFIs) in developing countries.
January 2009
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26 Reads
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16 Citations
SSRN Electronic Journal
Micro-finance institutions (MFIs) will certainly be affected by the financial crisis ricocheting across the globe, but the authors believe that the sector is fundamentally sound. Larger institutions, especially those with diversified funding sources, such as retail deposits, are best positioned to manage the effects of economic and financial contraction. Valuations may change, but the authors believe the long-term outlook for equity investment in microfinance is positive. Private equity valuations for MFIs have varied widely over the past few years. Investors should not value MFIs the same way they value traditional banks. The authors highlight five characteristics that differentiate MFIs from traditional banks, and justify a slightly different valuation approach: a double bottom line that aims for social and financial returns, excellent asset quality, high net interest margins (NIMs), high operating costs, and longer term funding available from developmental investors.
June 2002
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103 Reads
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16 Citations
Small Enterprise Development
This paper compares five of the better-known MFI assessment methodologies: ACCION's CAMEL, WOCCU's PEARLS, PlaNet Ratings' GIRAFE, and the methodologies used by MicroRate and M-CRIL. The challenges facing such assessments are then outlined. Assessments of microfinance institutions (MFIs) are essentially performance reviews by independent specialized parties. They provide the basis for peer group benchmarking, and for performance standards: managers can compare their institution's results to the performance of others, or with agreed standards or requirements. Supervisors, funders and networks can use this information to monitor microfinance institutions. Assessments also provide information to potential investors and lenders.
15 Reads
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4 Citations
6 Reads
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13 Citations
Citations (7)
... There has been little analysis of the effects of the food crisis on microfinance, but a survey of 45 major MFIs in 2008 found that for more than half, the food spikes were increasing the proportion of portfolio-at-risk and adversely affecting loan portfolio, while one-third reported that default rates were up (Duflos and Gähwiler 2008). One lesson from the recent microfinance crisis has been the need for better inflation prediction, as high inflation changes assumptions about the future, and has the potential to affect repayment rates (Daher and Le Saout 2015;Gonzalez 2011;Lyman et al. 2011). ...
- Citing Book
July 2017
... J.P. Morgan has created a market cap-weighted index: the LIFI (Lower-income financial institutions) Index. This index encompass various geographical regions and business models ( De Mariz et al., 2012). The LIFI Index has significantly outperformed the MSCI World Financials Index and the MSCI EM Banks Index since its inception in November 2003 and over different periods. ...
- Citing Article
- Full-text available
January 2011
SSRN Electronic Journal
... These reserves also help MBs in covering their ultimate losses without impairing their equity levels. Generally, solvency is not a concern as most microfinance institutions specifically MBs remain very well capitalized, with median equity levels not deviated from the nearly static range of 18-20% of total assets established in mid-2007 (Reille et al., 2010). ...
- Citing Article
- Full-text available
January 2010
SSRN Electronic Journal
... In some cases, businesses pursue multiple objectives of financial returns as well as an environmental and social contribution, in what is known as a double or triple bottom line. Some businesses focus on inclusive growth and combine opportunities of revenues' growth with inclusivity such as microfinance (Glisovic et al. 2012;O'Donohoe et al. 2009) or fintech (de Mariz 2020). A growing number of public and private companies in the United States are integrating ESG and sustainability considerations into their decision-making earlier in their growth trajectory (Citi Commercial Bank 2023). ...
- Citing Article
- Full-text available
January 2009
SSRN Electronic Journal
... To provide decision-makers with the required information in a timely manner in order to take corrective action in a timely manner by generating an early feedback system on problems (Padidar & Meschian, 2014). That the supervision system be effective from an economic and financial point of view to achieve the objectives (Khaled, Lauer, & Reille, 2006). To be flexible enough for the supervision mechanism to operate efficiently even if plans are modified (Padidar & Meschian, 2014). ...
- Citing Article
... Both performances are negatively affected by regulation due to the lack of specific microfinance regulation for most MENA MFIs. In addition, the regulation law is scarcely enforced in Tunisia and Morocco (Lyman and Reille, 2005) and the absence of prudential regulations in the microfinance industry in Morocco was conducive to an impairment of the loan portfolio in recent years 9 . Mature MFIs must be better regulated in order to be socially and financially performing. ...
- Citing Article
... Higher credit risk is associated with frequent write-offs (Fedorak, 2016). As a result, MFIs' managers tend to manipulate accounting information to hide eventual losses and display acceptable portfolio quality (Lassoued, 2021), especially that rating agencies base their assessments on profitability measures to estimate the global risk of MFIs (Reille et al., 2002). Moreover, MFIs are considered hybrid organisations (Battilana and Dorado, 2010), as they combine both social and financial objectives (Bloy et al., 2011). ...
- Citing Article
June 2002
Small Enterprise Development