17 September 2013

CDC’s US$25 million backing for new fund bringing financial services to the poor in Africa and Asia

CDC COMMITS US$25 MILLION TO LEAPFROG FUND II

Millions of low-income and financially excluded consumers in Africa and South Asia will have access to new financial services such as insurance, savings and pensions thanks to a US$25m investment announced today by CDC, the UK’s development finance institution.

CDC is committing US$25 million to Leapfrog Fund II, managed by LeapFrog Group Ltd, which specialises in backing companies that provide micro-insurance products and other financial services in developing countries.

LeapFrog Fund II will use CDC’s capital to invest in companies in Africa and South Asia that offer insurance, savings, pensions and other investment products to millions of consumers, the majority of who lives on less than US$10 a day.

To date, the companies in which Leapfrog has invested have provided financial services to over 18 million people across 13 countries. With their new fund, LeapFrog now aim to reach as many as 50 million customers. The fund’s investment will also support at least 50,000 jobs in LeapFrog’s portfolio companies and supply chain.

Access to insurance in developing countries is limited but growing, with Lloyds estimating that only 5% of people in developing countries have insurance. Across the African continent, over 60% of the population live in countries where the insurance industry for ordinary consumers is either entirely absent or reaches less than 1% of the population.

Maria Largey, CDC’s Microfinance Investment Manager said:

“CDC’s investment in the LeapFrog Fund II demonstrates our commitment to financial inclusion in developing countries. By broadening the range of financial services available to poor consumers Leapfrog is playing an important role in poverty reduction and economic development.

“LeapFrog’s investment will mean that companies in Africa and Asia will be able to reach millions of people with the type of insurance and savings products that enable them to plan for the future and overcome uncertainty and difficult economic times. In most developed economies we take these financial services for granted – people in Africa and Asia should be able to do so too.”

CDC’s commitment of US$25m has helped the fund to raise US$204m, from a range of commercial and development finance investors. The fund is targeting a total size of US$400m.

LeapFrog’s track record from its first fund – which raised US$135 million – includes partnering with companies such as Mahindra IBL and Shriram CCL in India, ARM Life in Nigeria and Apollo IL in Kenya. The new fund will make significant minority investments in portfolio companies, with the majority of deals in the $10-25m range, but with the potential to provide up to $50m.

Recent research indicates that demand for basic financial services is likely to grow:

  • J.P. Morgan estimates that bottom of the pyramid financial services currently present a U.S. $176 billion investment opportunity.
  • Swiss Re puts the total micro-insurance market at a potential value of $70 billion.
  • A recent McKinsey study predicts that over 1 billion people are set to move into the ‘consuming class’ from 2010 to 2025, and will have increasing incomes and the means for discretionary spending.

CDC is becoming British International Investment