By David Stripling
At SOCAP 2012, we caught up with Samantha Duncan, Investment Officer at LeapFrog Investments. LeapFrog is an investment vehicle for microinsurance carriers in emerging markets. She shared with us some of the benefits of being listed as a fund on Impact Assets IA 50 list of fund managers.
TriplePundit: Would you mind telling us a little about LeapFrog Investments and what you do there?
Sam Duncan: LeapFrog is a profit-with-purpose investment fund focused on Africa and Asia. We invest in businesses that provide insurance and related financial services to low income and other financially excluded people. We are a $135 million fund, and the largest investor worldwide in microinsurance. To date, we have invested in companies covering Kenya, Ghana, Uganda, Tanzania, South Africa and India – and have a strong focus also on Southeast Asia. LeapFrog is committed to achieving both top quartile private equity returns and to reaching 25 million people with financial safety nets. We launched the fund in 2008, at the Clinton Global Initiative with President Bill Clinton, and raised it in early 2009. So far, in just over three years, we can say that all our companies are growing and profitable, and that we have reached over 8 million people.
3p: That is phenomenal; that is fantastic, congratulations to you guys. Such a short lifespan with such a rapid success.
SD: Thank you!
3p: So LeapFrog was recently listed as part of the IA 50. Would you mind telling us what this means for LeapFrog, and how this might benefit the organization going forward?
SD: Impact Assets is a really powerful vehicle for us as a community of impact investors, helping us to contribute and share in developing the sector. And we are proud to be named among the top 50 fund managers. Impact Assets is doing a fantastic thing in trying to mobilize a lot of capital and build a platform for investors. For us, there are obvious benefits in potential future fundraising, but it is really more about building the community and being involved in developing the space. You know, a core premise of LeapFrog is to prove the concept that there are investible businesses out there that provide much needed financial services, and other services for low-income people. We need to treat those low-income people just as consumers, just like we treat anyone else, as subjects to whom we need to deliver a quality product, not as supplicants. Demonstrating that those businesses exist, and mobilizing private capital and specialist expertise to make those investments perform exceptionally is what we are all about. Being recognized by the IA 50 furthers that goal.
3p: That is terrific, do think this will help facilitate your access to more capital and get more liquidity into the marketplace?
SD: LeapFrog raised our first fund in 2009; we are very dedicated to investing at this time. But, as with all fund managers, once we are successful in doing that, it would be natural for us to come back to the market to raise further funds. To get the visibility that we will get with IA 50 could help us to reach out and connect with those investors that look to Impact Assets as a place to find recommendations of quality asset managers.
3p: Would you like to share with us some of the work you have been doing on the ground in Indonesia, maybe some of the new and exciting things happening there?
SD: Indonesia is a really exciting market, and especially for us, since this is a really populous nation where insurance penetration is so low. There is a really big population of people who need quality financial services, and need insurance. So we have been spending a good amount of time getting to know the market, with local insurers, both on the life and non-life insurance side. We are trying to identify the best vehicle to reach a lot of people while achieving our significant profit goals. In Indonesia, they have a very developed microfinance market, but very fragmented network. So what we look at in trying to reach people ranges from tapping into mass market banks, and the existing trust relationships of banks that know their customers and know their micro clients, through working with cooperatives in Indonesia that aggregate millions of people, through distribution via insurer agency forces. All have in common the need to connect through a really strong avenue to also develop trust-based relationships. Indonesia is also still an agricultural economy; there are a lot of farmers who need insurance, such as crop insurance. We are an investor looking for businesses that can best reach those kinds of populations.
3p: Do you have any good stories of how you insurance investments have benefited people on the ground?
SD: Yes. Our first investment was a company called AllLife, which provides life insurance only to people living with HIV/AIDS and, more recently, type 1 and type 2 diabetes. It is a really interesting model because before AllLife started, it was terribly difficult for someone with HIV in South Africa to get insurance at all, let alone affordable and quality protection of the right kind. Insurance not only helps mitigate the costs of loss of a family member; if you do not have life insurance, you cannot access credit, you cannot access other forms of financial services you need, and you are excluded from the financial system. AllLife offers people with HIV insurance by linking people to a health management program, and helping them to lead long and productive lives. Interestingly, the people in AllLife insurance may even have a higher life expectancy than the average South African outside the program. AllLife reports clinical measures of a 15 percent increase in the health of policyholders within a year, not least because the program improves optimism and hope for the future, so people start exercising, looking after themselves, and engaging with their communities again. Another great example: We just made an investment with the Mahindra Group in India. They are one of the world’s largest providers of agricultural equipment and machinery by volume, and they reach millions of farmers and other people rural areas across India. We just partnered with them and their insurance brokerage, which covers millions of low-income people typically with incomes of $1.25 to $3.50 per person in the household per day, and we are helping them scale their life and property offerings while also introducing a health insurance offering. Since two percent of India falls into poverty each year due to health events, you can’t underestimate the importance of getting families these insurance safety nets.
3p: This year’s impact theme, despite the title, Making Money Matter, seems to be focused on scale. LeapFrog, in keeping with Judith Rodin’s ‘recombinant innovation’ idea, has scaled impact in a different way, not the same old increase of service. LeapFrog has brought an old product to people in a new sector of vulnerable populations, reducing barriers for them. Are there any other aspects of scale you think are worth touching on?
SD: Insurance is fascinating by definition in that the more people you can reach, the more predictable and securely profitable it becomes, and the more risk you can spread across a given insurance policy, so insurance really is unique in that sense. In addition to that, LeapFrog is focused on partnering with established local businesses, which already have some scale. We invest between $5-$20 million, which is also among the top end of impact investments that we see among funds at SOCAP. We use that quantity of capital to reach many, many people. It is different when you are investing in established businesses and help those move into ever greater scale. You can work with a stellar partner on the ground to launch multiple innovative experiments, with significant potential impact, even while scaling the existing high-impact business.
3p: That is great, especially since you are relatively young as an impact investment fund. Are your investments finding other investors and capital markets to help grow their businesses as you fund them?
SD: That is core to LeapFrog. We are a team of insurance and financial services specialists with decades of experience, for example, in microinsurance, so we partner with businesses to bring out operational expertise. This is often the appeal, far above the capital (though counterparts like that too!), of our involvement. Another thing we focus on is bringing visibility to the businesses we invest in, helping them grow their global awareness and brand, getting the visibility they deserve and that creates a range of opportunities. An example of that is AllLife, which we just helped complete a subsequent fundraising round of close to $10 million. LeapFrog is backed by development institutions such as the IFC, the European Investment Bank and FMO, as well as entrepreneurs and investment icons like Pierre Omidyar (through Omidyar Network) and George Soros (through SEDF), and major banks, funds and re-insurers such as J.P. Morgan, TIAA-CREF and Scor. We use that network to help our portfolio companies increase their brand and global awareness, and to help enable follow-on capital raises if they need it.
3p: In closing, is there anything about your SOCAP experience you would like to share?
SD: We pride ourselves on being able to channel institutional capital to solve the world’s most pressing problems. We don’t believe there has to be a trade off between money and meaning, or profit and purpose. The theme I am seeing this year is that we are trying to develop a sector, including whole industries, not just specific businesses. LeapFrog is really about taking that sectoral approach to a different level. We were the first private player to invest systematically and at scale in microinsurance and related frontier financial services. We want to see insurance to the next billion consumers recognized as a sector in these countries, with protection available to people of different income levels. We really recognize the need for collaboration in that pursuit, bringing the non-profit sector and government along, and engaging with other for-profit investors who are values-aligned, to achieve not only financial results that are beneficial for all but shared impact on the greatest scale possible. Alongside President Clinton in 2008, we called for the launch of a hundred LeapFrogs, and a hundred partnerships with LeapFrog. We are thrilled to see so many people here thinking big and taking the leap.