LeapFrog Investments in Africa
LeapFrog Investments is a microinsurance fund and is considered one of the largest in the world. It was launched in 2008 by former United States President Bill Clinton. Leapfrog’s investment target has been high growth businesses that offer affordable insurance to vulnerable and low-income households in Africa and Asia.
The microfinance market remains largely untapped. According to the International Finance Corporation (IFC), there are about 4 billion people who are classified as low income. Their total annual purchasing power is estimated to be $5 trillion. Unfortunately, of the 4 billion, only 135 million are beneficiaries of microfinance insurance.
Since a large number of the population has no access to microfinance services, Leapfrog identified an opportunity to provide large scale capital investment, with the expectation that this will drive growth and profits for the companies receiving the capital injection. Additionally, the resources are expected to reach at least 25 million vulnerable people in the communities in a bid to alleviate poverty, and at the same time, generate robust profits for the investors.
LeapFrog Investments is currently involved in various projects in several African countries, including South Africa, Kenya, Nigeria, and Ghana, and hopes to expand to other countries in the future. Kenya and Ghana are classified as lower-middle-income by the World Bank, while South Africa and Nigeria are upper-middle-income economies.
However, these countries have a significant percentage of the population living below the international poverty line. Approximately 55.5% of South Africans live below the poverty line compared to Nigeria’s 40%, Kenya’s 36.1%, and Ghana’s 23.4%.
Africa’s economic outlook, especially for these three countries, shows that even though it is evident that the GDP of most African countries has increased significantly, with Ghana showing one of the fastest growth patterns in Sub-Sahara Africa. However, disparities resulting in unequal access to education, health care, and employment opportunities has resulted in a significant portion of the people being marginalized and ill-equipped to take advantage of available opportunities.
How LeapFrog Investments Work
LeapFrog is currently exclusively involved in healthcare and financial services because they are some of the fastest-growing markets in Africa, and indeed the world. This microfinance fund doesn’t just invest capital, but it also provides knowledge and expertise.
When choosing investment beneficiaries, LeapFrog looks for companies with shared values. The governance structure and potential growth scale also need to have a positive outlook before any investment decisions are made.
LeapFrog typically invests between $10 and $50 to enable the beneficiaries to have a greater impact in the communities they serve, reach new levels of growth and increase their profit margins. Once LeapFrog backs a business, it does so fully.
This is why the team is made up of former CEOs and senior executives whose portfolios include service in emerging markets. The team understands the challenges of growing a business in developing economies and ways to grow against all the odds.
LeapFrog’s Investment Strategy
LeapFrog identified areas where investment opportunities are seen to be worth the risk. Categorizing areas to invest has helped the fund to focus on creating relevant products, make them affordable, and improve the quality.
The beneficiary companies are categorized as:
Businesses in the growth stage that, with the right support, can scale in profit, client numbers, and impact.
Large distribution investments with companies that have the network to reach a vast client base. They include church groups, retail chains, mobile phone networks, non-profits, and microfinance institutions.
Insurer-driven investments, where LeapFrog invests in an insurer or co-invests by bringing capital and expertise to increase the speed of service delivery, reduce risk, improve impact and profitability.
LeapFrog’s involvement in the companies that receive funding goes further than providing funds. Although this fund aims to improve the livelihoods of those living below the poverty lines through service provision, investors expect a return in investment. LeapFrog ensures this is achieved by being more involved in the companies that receive funding. The fund does this through;
Creating governance structures and business strategies, which include social and financial performance.
Relevant product designs to suit the emerging consumer’s needs. The products are not only affordable, but are also relevant and of great quality.
Provision of technical support in sales and distribution. For companies that rely on traditional sales approaches, LeapFrog endeavors to integrate modern technologies that will lower operating costs and increase profits.
Identifying core operations and making the process effective and efficient.
Utilization of its global networks to train, recruit and retain senior talent to ensure continuity.
Development of easy and reliable data collection strategies to improve consumer experience and business performance.
The introduction of LeapFrog’s measurement framework, FIIRM. This framework integrates financial, impact, innovation and risk management metrics in a dashboard that is user friendly and easy to interpret.
LeapFrog does not look at capital investment as a trade-off. Instead, it sees it as a purpose-driven opportunity to amplify businesses by making them more competitive and commercially viable.
Companies in Africa that Have Partnered with LeapFrog
In 2016, Goodlife Pharmacy became the first pharmacy in East Africa to receive the largest direct investment from LeapFrog. With the financial support received from this fund, Goodlife Pharmacy plants to open more than 100 stores by 2021 in various towns in Kenya and the neighboring countries. This would create more than 700 jobs and reach over 5.5million consumers.
In Kenya, the pharmacy is the first stop for those in need of over the counter medication. Kenya’s pharmacy industry is currently worth $1.3billion. Goodlife Pharmacy has received recognition for its consumer-based model, which has resulted in rapid growth, partly because the pharmacy has an excellent management team.
In 2018, IFC recognized Goodlife Pharmacy for its all-inclusive business model, which focuses on reaching people at the base of the pyramid. Only about 20% of IFC investments have achieved this.
AllLife is a South Africa based company that offers life insurance. Its business model appealed to LeapFrog because the company created a profitable business by focusing on the marginalized people in South Africa. For years, people living with HIV were excluded from life insurance.
Today, AllLife offers affordable life cover and loan finance. Additionally, AllLife is actively involved in their clients’ health and wellbeing. This has resulted in a 15% improvement in their clients’ CD4 count.
While AllLife’s model has an incredible social impact, the business has been profitable, with an annual 50% growth annually, since its inception in 2004. In 2015, the company won the Prince of Wales Unilever Global Development Award for Business in the Community. LeapFrog has greatly been involved in product design and operations.
APA Insurance, a subsidiary of Apollo, is one of the most successful insurance companies in East Africa. It sells various types of insurance policies, including motor, health, crop, and life insurance. It primarily provides cover to the underserved communities by making the policies affordable.
LeapFrog formed a partnership with Apollo in 2011, intending to develop new health products and come up with a strategy to attract more consumers in the emerging market. One of the products that LeapFrog helped APA develop and launch was the last needs and hospital cash insurance. This innovation is expected to have far-reaching benefits beyond APA. The entire East African region is expected to benefit a well.
In October 2014, LeapFrog exited Apollo. At the time, APA was serving close to one million clients, of which three-quarters were underserved emerging consumers. By the time LeapFrog was exiting APA. Health insurance coverage had increased by 26%, while life insurance had increased by 170%, reaching 72,500 and 490,000 people, respectively.
Nigeria has one of the fastest-growing economies in Africa. Unfortunately, 66% of Nigeria’s vast market doesn’t have access to important financial services. ARM (The Asset and Resource Management Company) is the largest independent asset manager providing non-bank financial services.
Leapfrog partnered with ARM Life to expand life insurance. The capital and operational skill investment have helped ARM Life to improve its retail presence, product diversification, and business growth. For example, ARM Life has extended services to Nigeria’s revitalized mass market.
LeapFrog has also trained top tier management to improve financial reporting, governance, and human capital.
MiLife Insurance Ltd
miLife Insurance Ltd is a leading life insurer in Ghana. Its core values align with those of LeapFrog. They include making insurance accessible and affordable. LeapFrog has great experience in developing insurance products for developing countries and has been critical to the growth plans of miLife Insurance. Insurance penetration in Ghana is below 2% of the GDP. MiLife aims to reach over one million people with the capital and operational investment from LeapFrog.
Leading Investors Supporting LeapFrog
LeapFrog’s investment portfolio receives support from some of the world’s leading investors including The European Investment Bank, J.P. Morgan, Triodos Bank, the IFC, KfW, ACCION International and Omidyar Network.
Mario Garcia / [email protected]