November 1 2017

As India bolsters banks, LeapFrog sales show that alternative lenders and insurers are the true drivers of economic growth

  • LeapFrog Investments announces five sales of stakes in Indian non-bank financial companies in past 12 months, to global strategic investors, promoters and public markets
  • Latest exit is from LeapFrog’s stake in Mahindra Insurance Brokers, part of the $19bn Mahindra Group, sold to XL Group, a global re-insurer and one of the largest syndicates on the Lloyd’s insurance market
  • Mahindra exit follows sales to affiliates of Standard Chartered and Fidelity, as well as to Shriram Group and public markets, showing diverse and global investor appetite for Indian financial inclusion sector
  • LeapFrog portfolio companies in India have grown to reach 69 million people, over 90% of whom are low-income, revealing the scale of the opportunity to deliver financial inclusion in India

London 1 November 2017:

LeapFrog Investments has demonstrated how financial inclusion is driving growth in India, this decade’s fastest growing major economy , by selling five stakes in leading non-bank financial companies (NBFCs) in the past 12 months. The new investments in India come from major local and global investors, including XL Group, Fidelity, Standard Chartered and Shriram Group. LeapFrog, the profit-with-purpose investor, was recently ranked by Fortune as one of the top five companies changing the world.

While the Indian government last week announced plans to inject $32 billion into state banks to boost lending, the country’s non-bank financial companies grew their balance sheets by 14.5% in the past year against 8.4% growth for banks. Sustainable growth in consumer credit places NBFCs in a strong position to continue leading India’s financial inclusion revolution. Over 250m people in India currently do not have a bank account – equivalent to the fifth largest nation in the world. Likewise, 600m people in India remain under-insured, having purchased low sum insurance that will not suffice in an emergency.

LeapFrog’s latest sale is its full holding in Mahindra Insurance Brokers Ltd., part of the $19bn USD Mahindra Group, to XL Group, a global re-insurer and one of the largest syndicates on the Lloyd’s insurance market, underscoring the investment opportunity in NBFCs. The deal values Mahindra Insurance Brokers at approximately $200m USD. The company has expanded to become one of the leading Indian insurance brokers and has serviced over 8 million customers.

“Our partnership with LeapFrog has helped us make a transformative impact in the lives of several million underserved customers in the underpenetrated markets of rural India,” said Dr. Jaideep Devare, Managing Director of Mahindra Insurance Brokers Ltd. “The LeapFrog team’s deep understanding of consumers in emerging markets was vital in helping us access new market segments and drive sustainable scale. This is in line with our shared mission of the financial inclusion of the most excluded demographic groups in rural India, while continuing to grow and create value for all stakeholders.”

Other realisations by LeapFrog include sales of stakes in IFMR Capital to Standard Chartered Private Equity and Fidelity International’s private equity affiliate, the sale of Shriram CCL to its promoters, and a partial sale on public markets of shares in Magma Fincorp. These are all NBFCs that thrive in rural segments where a significant proportion of the country’s unbanked population resides.

Consumption in India is rapidly growing, with McKinsey estimating that the economy of Mumbai alone will be $245bn by 2020. This imbalance between an underserved market and growing spending power has fuelled the rise of NBFCs. According to PwC, the success of NBFCs is due to better product lines, lower costs, superior risk management capabilities to minimise bad debts, and a deeper understanding of their customer segments.

“The demand for quality financial services, particularly within overlooked low income and rural segments is staggering,” commented Stewart Langdon, Partner and Co-Head of Asia at LeapFrog Investments, who led the deal from inception. “Our successes have been driven by a relentless focus on understanding those emerging consumers’ needs and how to meet them with financial tools.”

Michael Fernandes, Partner and Asia Co-Head, said: “We apply this knowledge practically to the operations of the companies we partner with. The commercial opportunity to serve those who have been financially excluded has now been validated by strong exits from NBFCs as well as the entry of diverse major investors at point of sale.”

Nearly 80% of exits by impact investors from firms operating in the financial inclusion sector in India generated above-average internal rates of return (IRR) amongst specialist funds analysed by McKinsey.

“India’s current momentum is undeniable, with investors ranking it the most attractive emerging market for private equity investment over the next ten months, while it ranked as low as ninth out of ten as recently as 2013,” said Robert Van Zwieten, outgoing CEO of the Emerging Markets Private Equity Association (EMPEA). “It takes fund managers like LeapFrog, who have expertise in the market’s growing consumer sectors, to take advantage of this new wave of investor interest and create paths to liquidity through opportunities that deliver scale and strong realisations.”

LeapFrog retains a significant presence in India through its portfolio of financial inclusion pioneers, including sizable stakes in IFMR Capital, Magma, and Fincare. These are some of the largest and fastest-growing financial inclusion platforms in India.

LeapFrog companies reach a total of 69 million people in India, including 61.3 million emerging consumers, enabling distinctive insight into the product needs of this demographic and ongoing product refinement and innovation.

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