Challenges faced by impact investors on valuation methods and data
In the financial inclusion sector, high valuations may be a precursor to an overheating market, while low valuations can represent a missed opportunity. Impact investors need more reliable valuation data and standard valuation methods to make sound investment decisions and forward their financial inclusion objectives. However, without 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. As microfinance institutions (MFIs) and other financial inclusion 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 grow in importance.
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.