MICROCAPITAL STORY: ACCION Invests $4.2m in Two Microfinance Companies: Mauritius Based Leapfrog Investments Ltd and Swiss Based Paralife, Invests in Initiatives Aimed at Moving Microfinance 'Beyond Credit'

ACCION International, a microfinance organization founded in 1961, has invested a total of USD 4.2 million in ParaLife, a Swiss microinsurance holding company and LeapFrog Investments, a USD 100 million microinsurance investment fund headquartered in Mauritius. In a press release found on Microfinance Gateway, Ms. Monica Baron, the principal director of ACCION’s Gateway Microfinance Innovation Fund, said that the investment by ACCION was aimed at moving microfinance ‘beyond credit’. The press release quoted Ms. Baron as saying the future of financial inclusion lay in offering the working poor a basic suite of all financial tools instead of providing only credit. In this regard, Ms. Baron mentioned that ACCION believed both ParaLife and LeapFrog Investments would be leaders for the industry, developing flexible, responsive insurance products that would meet the needs of a broad range of low income clients.

ParaLife was founded in January 31 2007, by Rolf Hüppi, a former CEO and chairman of Zurich Financial Services, an insurance-based financial service provider headquartered in Zurich, Switzerland. Paralife, headquartered in Zurich, Switzerland, offers financial protection to low-income population and people with disabilities. Apart from ACCION, the Inter American Development Bank (IADB) has also invested a sum of USD 3 million in Paralife in February, 2007 according to this MicroCapital story. With the support of the World Bank, Venezuela based financial institution Andean Development Corporation (CAF) and the United Nations Development Program (UNDP), Paralife delivers affordable life insurance products to low-income population, micro entrepreneurs and people with disabilities. In addition to insurance products, Paralife works with local communities in a number of Latin American countries to provide training and job opportunities for the disabled. No further information on Paralife’s operations or the kind of support extended to ParaLife by the above mentioned organizations is available. Paralife does not report to the MIX Market, the microfinance information clearinghouse and no other information is publicly available about its performance.

LeapFrog Investments is a global investment firm focused on providing affordable insurance and financial services to low income people in developing countries such as India, Pakistan, South Africa, Ghana and Kenya. LeapFrog Investments, launched in September 2008 at the Clinton Global Initiative Annual meeting in New York City, is financially supported by the German Development Bank (KfW) and Goldman Sachs wealth manager Felipe Medina. Further specifics on the services provided by LeapFrog are not available. LeapFrog Investments does not report to the MIX Market nor has it published its financial data. Hence information on its total assets, loan portfolio and client base is not available.

ACCION is a private, non-profit organization founded in 1961. It issued its first microloan in 1973 in Brazil. While ACCION directly provides loans to entrepreneurs in countries in the United States, it disburses loans in the Latin American, Asian and African regions through its partner organizations. Details on the partner organizations (if any) through which ACCION has invested in ParaLife and LeapFrog Investments are not available. In the last decade, ACCION partners have disbursed more than 22.4 million loans totaling USD 17.4 billion with 97 percent of the loans repaid. ACCION has a gross loan portfolio of USD 760 K and total assets of USD 5.7 million. As of December 2007, its debt/ equity ratio was 28.83 percent and its return on assets was -22.34 percent. ACCION has also been awarded four stars (the highest rating) for efficiency and sound fiscal management, by Charity Navigator, an American based charity evaluator.

The press release found on Microfinance Gateway quoted ACCION as having taken a USD 1.2 million equity share in ParaLife. The release stated that ACCION, drawing on its strong market presence in Latin America, would support ParaLife’s expansion and rollout of low-cost insurance based products in other Latin American countries namely Colombia. The release also stated that ACCION’s USD 3 million investment in LeapFrog Investment would be used towards building and replicating a sustainable model for developing and marketing microinsurance services to the poor. Early pilots of this initiative would be conducted in Africa and Asia.

The need for microfinance to move ‘beyond credit’ has been emphasized in recent years by several key players. In an interview with the TIME magazine, Mary Ellen Iskenderian, the CEO of Women’s World Banking, a global network of 54 microfinance institutions and banks in 30 countries, says that providing credit alone is not the solution to long term poverty alleviation. Ms. Iskenderian says that it was the need for product diversification that led to the development of microfinance as opposed to microcredit. A statement on the Clinton Global Initiative website states that in order to truly address poverty, microfinance needs to move ‘beyond credit’ and address other needs which include savings, remittances, insurance and housing loans. In this regard, an ACCION research discusses five key elements that enable the poor to move out of poverty namely increasing income, building assets, managing risks, decreasing transaction costs and making well-informed financial decisions. Similar thoughts were also echoed in a report by the National Anti-Poverty Commission, which called for a package of capacity building activities focused on micro enterprise growth involving training, technology, product development and access to market. Ms. Iskenderian summarizes all such findings in her interview with TIME when she says poverty alleviation benefits are magnified when microloans are supplemented with savings and insurance products.

By Bharathi Ram, Research Assistant

Additional Resources:

Microfinance Gateway: http://www.microfinancegateway.org/content/article/detail/54370/

TIME – Dec 2008: Interview with the CEO of Women’s World Banking

Clinton Global Initiative projects: http://commitments.clintonglobalinitiative.org/projects.htm?mode=view&rid=42930

National Anti-Poverty Commission: “From Livelihood, to Micro Enterprises, Towards Jobs for the Poor” by Sec. Teresita Q. Deles.

Microcapital.org article: IDB invests $3 m in ParaLife

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