Emerging and Growth Markets | June 24, 2017

LeapFrog’s $180M bet, small business finance gap, investing in refugee futures, the Brief Quiz

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Greetings, ImpactAlpha readers!

#Featured: The Brief Quiz №20

Stumbling, dodging and…troubling? The U.S. stumbled on inclusion, according to this year’s Social Progress Index. Which countries went in the other direction? SOCAP launched a new conference and Nigeria launched a new agriculture fund. Which one will have more “impact”? The U.N. Sustainable Development goals are emerging as a universal impact investment thesis. What could possibly be the trouble with that?

Think about it…Then take this week’s Brief Quiz from Jérôme Tagger:

Troubles, T-shirts and the end of T-bones

#Dealflow: Follow the Money

LeapFrog commits $180 million to Ghanaian insurer. The financial services impact investor last year raised the $350 million LeapFrog Strategic African Investments fund, primarily from Prudential Financial. Its first investment commits more than half of that to Ghana’s largest and first publicly-listed insurer, Enterprise Group. In Africa, less than 25% of households have access to financial services. Life insurance is in particular demand in Ghana, where only 5% of adults have insurance. LeapFrog is already invested in the Ghanaian insurance market. The Enterprise Group deal is LeapFrog’s largest to date and represents a big jump for for the private equity firm, which typically does deals in the tens of millions of dollars. LeapFrog Investments backs financial services and healthcare companies that profitably reach low-income consumers in emerging markets. Those companies reach 91 million people and support more than 100,000 jobs, LeapFrog reports.

Dolphin Living raises charity bond for affordable housing after London fire. The housing charity raised £25 million ($31.8 million) within two days of listing the bond on the London Stock Exchange. It follows the deadly fire in London’s Grenfell public housing complex that exposed the poor and sometimes dangerous living conditions of U.K. low-income housing. Proceeds will be used for “well-designed, good quality housing at market and submarket rents for people on modest incomes,” according to the Dolphin Square Charitable Foundation. Dolphin Living’s is the fifth such retail charity bond, which allow charities to raise debt capital from the public markets. The nine-year bond offers investors a 4.25% interest rate.

IFC, Proparco back Moroccan green bond. Marrakech was the site of the last year’s “COP22,” the follow-on to the 2015 Paris meeting that resulted in the global climate accord. At the meeting, the kingdom committed $100 million to the World Bank’s green bond initiative. Now, Banque Centrale Populaire has raised €135 million ($151 million) from the International Finance Corp. and Proparco for Morocco’s first green bond issuance in a foreign currency. The bank’s goal is to enable long-term institutional investments in Morocco’s renewable energy sector. The 10-year bond will be used to refinance the bank’s renewable energy investments. Banque Centrale Populaire estimates the projects financed will curb 938,000 tons of CO2 emissions per year.

See all of ImpactAlpha’s recent #dealflow.

#Signals: Ahead of the Curve

More emerging-market investors focus on smaller deals, but finance gap persists. ImpactAlpha’s three-part “Fellow Travelers” series highlighted the gap in early-stage capital for small and growing businesses in emerging markets. That gap persists, according to the annual “State of the Small and Growing Business Sector” report from the Aspen Network of Development Entrepreneurs. In 2016 capital invested in emerging market deals under $2 million fell to $278 million, down 9% from the previous year. But interest in smaller deals appears to be increasing. ANDE said early-stage deals last year represented 28% of all deals (up from 13% in 2011). And 53 new investment vehicles launched in 2016, with $2.7 billion in capital targeting emerging market small businesses. Newer vehicles are more likely to be open to seed stage deals (42%, compared to 18% for vehicles launched between 2007 to 2011). And the difficulties in getting really small deals done persists. The median minimum deal size for new funds in emerging markets remains $250,000.

#2030: Long-Termism

Investing in the future of refugees who aren’t going home anytime soon. Nearly 66 million people have been forcibly displaced from their homes. About two-thirds of these are internally displaced, but 22.5 million people are refugees in foreign countries, a record high. More than half of refugees are under the age of 18. Most don’t have a chance to go to school. “These are all individual human beings that have the same dreams, the same ambitions, the same desires to live a life in freedom and safety and the opportunity to decide who they’re going to become,” a representative from United Nations High Commissioner for Refugees said from the Millennium Stage at the Kennedy Center in Washington D.C. at a World Refugee Day event this week. “Every human being is entitled to that.”

What happens to those dreams when people spend their entire childhoods in forced displacement? Refugee children are five times more likely than non-refugee children to be out of school, according to the UNHCR. The agency looks after six million school-age refugee children alone, but 3.7 million aren’t enrolled in school. Long-term, “the gap becomes a chasm,” the report says. Only 22% of refugee kids report being in secondary school, compared to 84% of the total population. At the higher education level, just 1% of refugees start university, compared to 34% overall. The situation is even worse among low-income refugees fleeing to other low-income countries — and that’s most of the world’s refugees. “Twenty years is more than an entire childhood, and represents a significant portion of a person’s productive working years,” the UNHCR report says. “It is critical that we think beyond a refugee’s basic survival.”

Statistically, the payoffs are high for helping refugee adults and children alike fully rebuild their lives in a new place. The UNHCR report notes that refugees resettled in the U.S., for example, settle quickly and that their income progression outpaces economic migrants. They also invest more in education. Billionaire George Soros staked up to $50 million in Humanity Ventures, a partnership with Mastercard focused on education and healthcare. Libraries Without Borders, a Washington D.C. nonprofit is leading several initiatives, including a partnership with Arabic learning venture EduTechnoz to teach literacy skills to Syrian refugee children in Jordan. Corporations like IKEA and Starbucks have pledged to hire refugees. The new Massachusetts workforce development pay-for-success program is trying to improve employability and skills for adult refugees and other immigrants.

Musician Thao Nguyen’s performance at the Kennedy Center showed how far a displaced family can come in one generation: Nguyen’s parents were refugees from the Vietnam War who settled in the D.C. area and opened their own business. Thao is the lead singer with Thao & the Get Down Stay Down. “I am a proud daughter of Vietnamese refugees,” she said. “As their child, I have a moral duty to tell their story.”

That’s a wrap. Have a great weekend! Please send any news and comments to [email protected].

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