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When social impact and healthy returns go hand-in-hand
"THE first level of charity is monetary donation. The second level is to experience it (volunteer work). The third level is to equip the beneficiaries with a skill set. The fourth level, and the highest tier, is to create a movement. Build on the skill set that the beneficiaries are equipped with to create an ecosystem and the whole environment can then sustain itself," says Declan Ee, partner and founding investor of TLG Capital.
"The founder of Shenton Medical Group told me this and it has stuck with me ever since." These words, coupled with the desire to give back to the community, may have given rise to the creation of TLG Capital, a frontier market investment firm based in the United Kingdom, founded on the belief that social impact and commercial returns can co-exist in an organisation.
Started in 2009, with just a team of about five, the fund's first foray was an investment in Cipla Quality Chemical Industries Limited, a pharmaceutical plant in Uganda, to finance the annual manufacturing of one billion anti-malaria, hepatitis B and low-cost anti-retroviral (HIV) pills which currently serve half a million HIV patients per annum.
"There was a first group of investors and Zain Latif is the founder and CEO. After the Lehman Brothers collapse in 2008, he saw the opportunity to invest in Uganda."
Mr Ee was a banker with Lehman Brothers and after the financial crisis, instead of rebuilding his investment portfolio, he decided to advance the cause of SRI (socially responsible investing) at a time when many questioned its profit potential.
"I felt that SRI had a huge social impact, for example the investment in Uganda, which was actually to invest and scale off a medical manufacturing plant that does anti-retroviral HIV drugs using off-patent drugs that you can sell cheap."
He added that the World Health Organization gave them an exemption ahead of schedule - there is a time period where patent laws protect drugs from being copied, which currently stands at 20 years- as long as the drugs are manufactured in Africa.
"There is a humanitarian need for such a drug and Cipla, a US$8 billion India pharmaceutical company which is the world leader in generic drugs, had invested in this project as well. So I thought that this was a phenomenal opportunity."
So with access to such medicine, HIV patients in Africa "can now have a normal life because the anti-retroviral treatment is so effective. The average lifespan of someone who is on it could be 60-80 years".
TLG Capital also partnered with the Swedish government to form Swedish-Ghana Cancer Clinic - the first cancer clinic in Ghana.
"Very original right, the name?" Mr Ee says with a laugh. But on a more serious note, he says that with the two MRI machines brought in, patients do not have to fly to India to get a scan, which saved the people both time and money.
Mr Ee says that initially, they were just looking for opportunities to invest in Africa, and the medical industry was not on the radar.
"In Africa, there are a few investments that one can do, for example, mining. However, that sector is very political and needs a lot of investment, so we did not want to play in that space. We knew we wanted to do something consumer-related - as there was the rise of the African consumer. And within that space, there is the medical area, and we slowly gravitated towards that."
When TLG Capital first started, the investments ranged from S$20,000 to half a million. However, by 2012, the investors that came on board were pouring in up to a million dollars.
In fact, on May 2, 2018, Sweden's development finance institution, Swedfund - whose goal is to eliminate poverty by creating sustainable businesses - announced a US$10 million investment into TLG Credit Opportunities Fund (COF). Launched in 2016, COF focuses on providing funding solutions to Sub-Saharan SMEs which typically cannot gain access to debt.
In Sub-Saharan Africa, SMEs have limited opportunities to be granted bank loans as leading banks tend to focus on larger corporates and governments. This lack of access to financing is a key factor restricting SMEs' growth and TLG started COF to address this issue.
Mr Latif, CEO of TLG Capital, says: "The concept of the fund is simple. To plug the 'missing middle' funding gap for Sub-Saharan African SMEs."
Mr Ee agrees and says: "TLG Capital started to scale up from 2012 and invested in companies such as MyBucks - which is one of COF's portfolio companies. We structured a US$25 million facility for them and invested in them pre-IPO - they had their IPO in 2016."
MyBucks is a fintech company using mobile-based lending to reach the unbanked in Africa. They process even US$50-US$300 loans which banks will find impossible to execute.
Tim Nuy, group deputy CEO of MyBucks, said that loans of US$300 or less is not cost effective for banks. Moreover, bank penetration is very low in Africa, unlike mobile phones.
Verification is done using mobile phones using an AI-based model of automated lending.
MyBucks ties up with government organisations, such as the police commission office and teacher's federation in Tanzania, and slots itself into the payroll system, so borrowing and repayment is done through mobile phone and it is automated.
Mr Nuy says: "This prevents the people from going to loansharks, and they usually need the money for their children's school fees or to conduct a burial ceremony for their loved ones."
People used to equate CSR with charity and donations. It was hard to visualise being able to make a living through CSR.
That notion, however, is changing.
Mr Ee says: "In Asia,the generation born after the 1980s is starting to take over the family businesses and they are more socially conscious and the allocation of funds to such causes is not such a foreign concept to them."
He adds that when he sees people investing in cryptocurrencies, he will ask them to consider allocating just one per cent of that amount for socially impactful investments. And investors who have done so are happy - since 2012, they have doubled the money invested.
Mr Ee says: "There is a misconception that impact investment is akin to charity with poor returns. TLG's track record has shown that social impact and commercial returns can go hand-in-hand. Investors in TLG since 2012 have more than doubled their money invested. TLG's credit fund has also paid out a 10 per cent annualised coupon for the last eight consecutive quarters."
When asked about what more can be done to raise the awareness of SRI, Mr Ee says it is important to find a few case studies and champions who are willing to talk about the issue.
"To find a few bankers to say we are focusing on this. We can have a few approved funds that the government works with and help showcase their success stories."
With the company's manpower now doubled, Mr Ee and his team aims to work closely with their partners to scale up the firm's reach across Africa and study Asia next for investment opportunities.
Although Mr Ee gave up his high-flying career to set up TLG Capital, he looks back on it with no regrets.
"An entrepreneur is someone who gets excited building things. It is like a living creature, you have an idea, you cultivate it, then it takes on a life of its own, you then take a step back, hire a new department, and the creature morphs into something more skilled. Same as CSR, you have to cultivate the investment to make it sustainable, otherwise it will just be money outflow all the time."