The best of both worlds
The story of WorldRemit and its founder Ismail Ahmed reads like a film script. In 1988, he fled to the UK from Somalia as a refugee. He found himself a job and sent the money he didn’t need back to his family in his homeland. That didn’t just cost him a lot of time going to the agency that arranged the money transfer. The agency also charged him a fee of over 10 percent.
We’re not talking about a marginal market here. The transfer of money from rich countries to poor ones constitutes a major source of income for families in those countries. It involves billions of US dollars, more than the sum of all the money spent on development cooperation. There must be a smarter way, Achmed thought. He learned all he could about the international money transfer market and mulled over ideas for using modern technology to make transfers simpler, faster and cheaper.
In the meantime, Ahmed had gone to work at the United Nations. Yet, when he exposed corruption, it cost him his job. He instituted legal proceedings and in compensation for unfair treatment received a payout of US$200,000. He used this to set up WorldRemit in 2010, a service for international money transactions via mobile phones. Customers pay a fee of 2 to 3 percent of the amount they transfer. That’s a lot less than the 10 percent or higher charged at traditional money transfer agencies.
‘WorldRemit is a great example of how financial and social return can go hand-inhand,’ Nick Moon, a partner at LeapFrog Investments, says. Moon was invited to the first Impact Day held by Van Lanschot and Kempen on 6 June. Ismail Ahmed was also supposed to attend but was forced to cancel due to illness. LeapFrog Investments invests in companies in Africa and Asia that explicitly aim to have a social impact. It focuses mainly on financial services and healthcare. LeapFrog is a trendsetting impact investor. The Global Impact Pool has invested some of its assets via this investor, which was set up ten years ago. ‘Our founder, Andy Kuper, was working on an irrigation project in India,’ Moon explains. ‘Participating farmers had a 90 percent chance of success. Yet very few were willing to participate. That 10 percent chance of failure was too big a risk. A failed harvest would plunge them straight back into poverty.’
Kuper realised that an insurance policy would persuade farmers to participate and considerably improve their quality of life. Financial services such as insurance were very underdeveloped in India at that time. Kuper recognised the enormous potential for supporting people with low incomes and at the same time helping them to be a commercial success. With that aim in mind, he set up LeapFrog Investments together with a few others. The goal: to invest in companies which seek to earn a ‘profit with a purpose'.
Solid track record
This year, LeapFrog launched its third investment fund, the Emerging Consumer Fund III. The idea was to raise US$600 million, but in fact the figure reached US$700 million. ‘We have built up a solid track record of financial return and impact over the past ten years,’ Moon explains the interest from the market. ‘At the same time, we are seeing institutional investors and family offices examining the social impact of their investments more carefully.’ LeapFrog chiefly invests in companies in the financial services and healthcare sectors. ‘We select companies that mainly reach consumers with incomes of $US2 to 10 a day,’ Moon clarifies. ‘There is huge potential for growth here. For us it’s crucial that companies genuinely want to have a social impact. In this respect, we look at aspects such as good governance and the strength of the company’s management, but also at the quality of the products or services and consumer protection.’
What do consumers think?
LeapFrog has developed its own system to support its investment decisions: FIIRM. The abbreviation stands for Financial, Impact, Innovation and Risk Management. An important aspect in determining the impact is consumer insights. In other words, what do consumers think? LeapFrog has a special team that researches this. For instance, it discovered that 90 percent of Goodlife Pharmacy customers (see box)
pay for their medicines in cash. That meant no money, no medicine. Partly at the initiative of LeapFrog, an insurance policy was created and a system for paying by smartphone.
LeapFrog also assesses whether it will be easy to sell the holding in the company in the long term, e.g. to a strategic investor. That of course also yields a return for the pool. Over the past ten years, LeapFrog has sold eleven participations. One example is the shares in insurance company BIMA, which was founded in 2010. LeapFrog became involved in the company in 2013 and supported its growth process. In 2017, LeapFrog sold its share to Allianz X, part of the Swiss Allianz Group. ‘BIMA was highly innovative and sold insurance policies via mobile phones,’ Moon says. ‘In the space of six years, the company sold 30 million policies in fourteen countries in Africa, Asia and South America. That was partly thanks to close cooperation with mobile phone providers. The insurance policies offer protection and security to millions of families with low incomes. Three-quarters of the policyholders were previously uninsured. That just shows the enormous impact of BIMA.’
According to Marjoleine van der Peet, senior portfolio manager of the fund, LeapFrog was one of the first investors to attract the attention of the Global Impact Pool. In its first year, the Global Impact Pool invested in five funds, including LeapFrog. An important criterion in selecting funds is their contribution to the United Nation’s Sustainable Development Goals (SDGs). The emphasis lies chiefly on the SDGs relating to good health and well-being; water; energy & climate; decent working conditions and food & the circular economy. In 2018, the Global Impact Pool invested a total of €68 million in 45 countries. That translates into the sustainable cultivation of nearly 200,000 hectares of agricultural land, the generation of 28,000 MWh of clean energy and the prevention of 11,000 tons of CO2 emissions. Thanks to these investments, 700,000 people now have access to improved healthcare and the quality of life of nearly 145,000 small business owners and farmers has been enhanced.
Van Lanschot Kempen
Have your cake and eat it
‘Investment always has an impact on society,’ says Karl Guha, CEO at Van Lanschot Kempen. ‘We want to create a better world for our children and grandchildren. That’s why we examine the social return on all our investments.’ Initiatives such as LeapFrog Investments and the other funds in which the Global Impact Pool invests have helped to demonstrate that a competitive financial return can go hand-in-hand with a social return and an improved quality of life. ‘You can have your cake and eat it too,’ Guha confirms. The best of both worlds really is possible.
Goodlife Pharmacy is a chain of pharmacies in Eastern Africa. The pharmacies mean that medical facilities and medicines are accessible and affordable for hundreds of thousands of people. This is of vital importance to people in the region. The United Nations estimates that 100,000 people die every year from fake and ineffective medicines. LeapFrog invested US $22 million in the company in 2016. One year on from the investment, Goodlife Pharmacy had become the largest pharmacy brand in Eastern Africa. The number of locations had doubled to 38. The goal is for Goodlife Pharmacy to grow further to 100 stores and to serve over 5.5 million people in 2021.
Kempen Capital Management N.V. (KCM) is licensed as a manager of various UCITS and AIFs and authorised to provide investment services and as such is subject to supervision by the Netherlands Authority for the Financial Markets. This document is for information purposes only and provides insufficient information for an investment decision. This document does not contain investment advice, no investment recommendation, no research, or an invitation to buy or sell any financial instruments, and should not be interpreted as such. The opinions expressed in this document are our opinions and views as of such date only. These may be subject to change at any given time, without prior notice.