How can we unlock funds to speed up impact investment in emerging markets? Here Jon Huggett, founder of Third Foundation and chair of the Social Innovation Exchange, introduces a new insurance innovation designed to create social impact in development.
Project Isizwe, a small NGO in South Africa, is providing economical Wifi to people for the first time through a social innovation – HUGInsure, a specialist insurance entity for social impact investment.
HUGInsure enables Project Isezwe to bring the connectivity that we now take for granted to people who have been at the margin of the internet. It does this by insuring risks to release funds from investors, and is a sophisticated innovation that uses some of the world’s best tools.
Wifi is handy, and good for your wealth, too. “Wifi availability can have a phenomenal effect on GDP growth” said Liesbet Peeters of D-Capital. The City of Tshwane wanted to offer free Wifi, and was willing to pay a network, once it that was running, and budget for future costs. Project Isizwe was confident that an investment in installation would pay back in 18 months. A bank considered a loan, but was not sure how to assess the risk. The project stalled.
Once HUGInsure brokered a guarantee from insurer , the bank released $3.5M so that Project Isizwe could build the Wifi network. HUGInsure acts as a brokerage platform, and is a collaboration between insurer Hollard, re-insurer , reinsurance market , and D-Capital, a development capital firm.
HUGInsure – which stands for ‘Humanitarian Universal Guarantee Insure’ – is an innovative way to use risk management tools and skills to speed up economic development. It recognises that many investments in developing countries are both very attractive and very risky. Regular investors often see the potential for healthy returns, but do not yet know how to price the risk. Emerging markets are, well, emerging and new. A few bold investors charge in with an appetite for risk: the Soros Economic Development Fund has achieved some impressive returns, and felt some losses, too. Guarantees from insurers, for a fee, can raise the comfort level of investors. The funds flow more quickly, enabling both returns and impact.
Risks in emerging markets can be complicated, which opens the door for those with skills around purchase tramadol generic ultram understanding complicated risks. Demand and revenue may still be speculative. Institutions may not be trusted. NGOs can be hard to finance, even in the developed world. A collaborative approach can bring the best skills and tools to bear.
HUGInsure brings together very different organisations around a shared goal of accelerating funds for development. Consider the deal between Project Isizwe, the City of Tshwane, and Hollard. In turn, Hollard re-insured with MunichRe, while both AON and Lloyds are geared for deals with larger NGOs. As Jasmine Whitbread, CEO of Save The Children International, commented, “We are constantly searching for solutions that will accelerate the deployment of funds so that we can reach the most vulnerable children and their families as quickly as possible.”
HUGInsure was launched in September at the Clinton Global Initiative, where Private Equity International hailed it as one of the ten hottest ideas in impact investing. It promises both to speed funds by brokering deals, and to build a fact base to help understand risk in the future. Hopefully, that will further accelerate impact investing.
For years, development practitioners have complained, “What happens in the field stays in the field?”. Lessons learned in one place are not shared around the world. New investments don’t draw on full wisdom of experience, so are more risky. HUGInsure allows co-creation. Hollard can explore new products. Large NGOs are collaborating with prototyping. It creates a bridge between different cultures, such as the corporate insurers and the social NGOs.
HUGInsure has a simple, shared goal – to accelerate funds that can drive impact. It can also accelerate funds by building up a base of knowledge. Data is still scarce in development circles, but platform information helps quick learning – sorting the trials and the errors. In time it may speed cycle times, bringing in more innovations. HUGInsure is an African innovation with an African approach – entrepreneurial and bottom up. It’s a departure from the standard development approach, which is often top down and meritocratic. It parallels entrepreneurial success in other fields in Africa, for example in healthcare, described by Eric Bing and Marc Epstein in Pharmacy on a Bicycle.
It is a great example of how innovation tools can help development. Let’s hope it inspires more.