By Alistair Gray in Monte Carlo
Six of the world’s leading insurers are to invest in a new $400m private equity fund being set up to back companies that sell financial services to individuals in developing countries.
MetLife, Prudential Financial and Swiss Re are among the companies backing the second fund being put together by specialist “microfinance” house, Leapfrog Investments.
The group will disclose as early as Monday that it has raised $204m for the venture, with plans to raise up to $200m more in the coming months.
Other investors include the financial institutions JPMorgan Chase, TIAA-CREF and the European Investment Bank as well as mainstream insurers such as Partner Re, XL and Achmea.
The fund will aim to take stakes in companies that offer general insurance and life assurance, as well as savings, pensions and investment products, to low-income consumers, some of whom earn between $1.25 and $10 a day.
It will be looking at prospective investments in south and south east Asian markets such as India, Indonesia and Sri Lanka as well as parts of sub Saharan Africa including Ghana, Nigeria and Kenya.
“A lot of people are saying the fundraising environment is quite brutal,” said Andrew Kuper, founder of Leapfrog. “But people [investors] are looking for operators [of businesses] – not just clever [financial] structures.
“People have become interested in Africa, parts of Asia … We see decades of opportunity lying ahead.”
Leading insurers based in developed markets have previously focused their expansion efforts in developing countries on the relatively prosperous emerging middle classes. They have tended to avoid the high volume, low margin and difficult business of offering financial services to the world’s poorest people, especially given potential problems in distributing the products.
However, Leapfrog said mainstream insurers are increasingly interested in the area.
Lata Reddy, a corporate social responsibility executive at Prudential Financial, said: “People have been slow in coming to the realisation there’s potential in making money here. It’s a shift in mindset – seeing low-income [individuals] as consumers, not recipients [of charitable aid].”
Leapfrog pointed to research from bodies including the World Bank, Global Findex and McKinsey showing there are 1.9bn potential consumers – only three in ten of whom have access to financial services. Their total consumption is forecast to rise from $2tn to $5tn by 2022.
The new fund is set to become almost three times bigger than Leapfrog’s $135m maiden offering, which it invested in seven companies reaching a total of 18m people.
Leapfrog declined to disclose the profitability of its first fund, but said revenue rose by about a quarter on average across its portfolio in 2012 compared with a year earlier.