On the eve of the G8 Impact Investment Forum, hosted by UK Prime Minister David Cameron on 6 June, LeapFrog Investments has announced new figures that demonstrate how investors can marry strong financial results with social impact.
LeapFrog, the emerging markets fund manager, says its portfolio companies now reach 23.7 million people in Africa and Asia with financial tools, 13.2 million of whom are poor or low-income.
This has been achieved alongside accelerated profitability and growth, with an average revenue increase in 2012 of 24.6 per cent across LeapFrog’s portfolio of companies. By contrast, during this period global nominal GDP growth was 3.9 per cent. By focusing on the fast-growing emerging consumer market, LeapFrog’s companies were even able to exceed the 17.4 per cent average growth in financial services in their home markets.
“We are witnessing the rise of the next billion consumers, and the companies that are able to serve them at scale will be the iconic businesses of the future. Across 11 countries, our companies sell products that benefit more people than the populations of London, New York City and Hong Kong combined,” says LeapFrog’s founder Andrew Kuper. “These latest results show categorically that low-income people are willing and able to pay for affordable financial services, and that the private sector can serve this vast new market. For investors, there does not have to be a trade-off between financial performance and impact.”
LeapFrog is now the world’s largest investor in insurance and related financial services to emerging consumers.
“LeapFrog has pioneered a new way of doing business. Their approach is game changing – it’s a model that can reach huge numbers,” says Fawzia Naqvi of Soros EDF, an investor in the group’s current fund.
Significant reductions in operating costs, particularly in distribution, are enabling companies to reach low-income and underserved consumers at unprecedented scale. For example, portfolio company Bima sells and administers insurance via mobile phones, which can dramatically reduce marketing costs and increase collection of premiums. The company sells policies in countries such as Ghana and Senegal for as little as USD0.20 to USD6 a month. In less than two years, Bima has reached over 1.6 million people with the benefits of life and health cover.
Technology is not the only enabler of low-cost and high-volume business models. For example, Mahindra Insurance Brokers, a LeapFrog investee, has pioneered distribution to rural customers by leveraging the Mahindra Group’s extensive vehicle distribution network. The insurance company has grown swiftly to serve over five million people, protecting productive assets such as tractors, farm equipment and two-wheeler taxis, for as little as a dollar a month.
“It isn’t easy operating in emerging markets, or serving the underserved. We help our portfolio companies address challenges by providing them with specialist operational support alongside capital, including an in-house team of actuaries, product design developers and alternative distribution experts,” says Kuper. “Our partner companies are reaching customers lower down the income pyramid than was once imagined possible with quality products. The evidence is in that profit-with-purpose business works. For us, and for other investors and innovators in emerging markets, this is just the beginning.”
