Financial Inclusion
The provision of basic financial services to unbanked, low income populations can have a truly transformative impact on their ability to create wealth for themselves and escape the ‘poverty trap’. Credit, savings, insurance and payment systems are all examples of empowering services that are taken for granted in the developed world, but are lacked by billions of people in the developing world who still do not have access to the formal financial sector.
Microfinance attempts to meet this demand and Legatum Ventures believes that the microfinance industry is now at an inflection point. In an industry that has traditionally relied on non-profit organisations and grant-driven programmes, most microfinance institutions (MFIs) have remained small and unable to achieve the scale needed to grow in a capital and labour-intensive industry. Increasingly, however, private and public capital is flowing to for-profit MFIs, enabling them to bring better products and levels of service to more people at lower cost. These MFIs are now subject to market forces that distinguish and reward those organisations providing the highest value to customers. Legatum Ventures has made several investments in the Financial Inclusion sector, both in support of MFIs directly and in enterprises that will ultimately benefit the sector as a whole.
Capital Intermediation
The dearth of capital available in developing countries to certain key sectors is a significant retardant on growth. Without capital finding its way to high impact sectors, small businesses cannot become larger businesses and capital markets remain underdeveloped. The intermediation of capital to growing businesses is therefore critical to developing a vibrant economy near the base of the Prosperity LadderTM. To that end, Legatum Ventures has invested in two companies that provide advisory services devoted to accelerating the capital available in this vital segment of the economy.
Energy and Power
Energy is fundamental to accelerated economic growth and a healthy society. Without access to reliable power, people are often denied the chance to improve their own living conditions through hard work, individual endeavour and entrepreneurship. As a result, much economic promise is left unfulfilled. According to the International Energy Agency, at least 1.6 billion people (24% of the world’s population) live without access to electricity and many more face daily blackouts. The vast majority of these individuals reside in developing regions such as Latin America, Africa and Asia and, according to the World Bank, the lack of a reliable source of electricity can be a larger barrier to entrepreneurship than access to capital.
In the absence of a modern power infrastructure, many poor communities still rely on rudimentary fuels such as wood, dung, kerosene and diesel to meet their energy needs. Such fuel sources are inefficient, inconvenient, expensive and frequently unhealthy, not to mention their substantial negative ecological damage, wrought by their highly carbon intensive nature. Legatum Ventures believes that a significant opportunity exists to support innovative and scalable businesses seeking to deploy renewable energy technologies in the developing world. By increasing electrification rates using clean and renewable sources, these companies will deliver significant social and environmental benefits, while also improving energy security within their countries of operation.
Water and Sanitation
A series of convergent trends are putting unprecedented pressure on the world’s resources of fresh water and its sanitation infrastructure. Population growth, food consumption, urbanisation and increasing industrialisation have all contributed to the increased demand for water. Meanwhile, the supply of usable and potable water has decreased as a result of pollution, and could potentially experience extreme pressure in future as a result of climate change.
In the developing world, these trends are compounded by a lack of infrastructure and the widespread use of water-inefficient agricultural techniques. The resultant poor sanitation and health impacts can be debilitating for low income populations, substantially restricting social and economic development. Legatum Ventures is actively considering investment opportunities that will facilitate greater access to clean water and sanitation in an affordable and scalable manner.
Natural Resources
Whether mineral, agricultural or marine based, natural resources often form the building blocks of developing world economies. The sustainable development of such resources, combined with intelligent and empowering re-investment strategies, could lead to permanent advances in the prosperity of many developing nations. Prime examples of successful resource based economies include Australia, Canada and Norway, all of which are countries that have achieved their development through intelligent investment in their natural resources, within a fair and transparent governance structure. Legatum Ventures seeks investment opportunities that leverage technology and innovative business models to significantly accelerate the sustainable utilisation of natural resources in the developing world.
Technology
Technology has the potential to catalyse step changes in economic development and can significantly accelerate prosperity in the developing world. By enhancing efficiency, communications and access to reliable information, technology has a powerful multiplier effect on sustainable development. Prime examples of the transformative impact of technology include the proliferation of mobile phones across Africa and the increasing penetration of internet services in India. Both of these technology advances have enabled many hundreds of millions of people to increase their efficiency and productivity through better communications and access to information. As a result, consumers in the developing world have embraced mobile payment solutions at a faster rate than those in the US and Europe. Legatum Ventures has already made investments in the financial technology sector in India, and considers investment opportunities within the communications, hardware and software sectors throughout the developing world.
Education
Education is fundamental to the advancement of prosperity and human flourishing. Knowledge is empowering, but an aptitude for critical analysis is even more so. Often the public sector is responsible for the bulk of education activities in the developing world. However, more and more private sector initiatives are gaining traction in countries as diverse as India, Kenya and Brazil. These ventures are frequently able to deliver considerable value to the education market at an affordable price, through a combination of innovation and a persistent investment in quality. Consequently, and given a choice, many families in the developing world would pay for a higher quality education if it were available through the private sector. Legatum Ventures seeks to support scalable, innovative and commercially sustainable initiatives that hold the promise to revolutionise the impact of education in the developing world.
Healthcare
A person’s health is their most valuable asset. In developing regions, this fact holds even more true since incomes are often based on day-to-day productive activity. Without good health, and in the absence of a social security net, people in such regions are unable to provide for themselves financially, attend school, prepare food and simply enjoy their lives. Despite the fact that the health challenges of low income populations are typically well known and well studied, they are often not well addressed. Legatum Ventures believes that a significant opportunity exists for entrepreneurial ventures to deliver healthcare solutions that are scalable, affordable, innovative, and of a high quality. Furthermore, by transforming the relationship between the patient and the service provider to that of customer and entrepreneur, a clear requirement for accountability is established. Legatum Ventures seeks investment opportunities in the healthcare sector that are managed by experienced professionals, target large and poorly served markets, and are able to leverage innovative technologies and business models.