LeapFrog Investments, a Mauritius-based fund that invests in microfinance institutions (MFIs) offering insurance to the poor, is looking to deploy around $40 million (Rs178.4 crore) from its $110-million global fund in India. LeapFrog, whose investors include Soros Economic Development Fund set up by investor George Soros, the World Bank's investment arm International Finance Corp. and Omidyar Network run by eBay founder Pierre Omidyar, is looking at replicating in India some of the affordable insurance models it has introduced in Africa and other parts of Asia.

"The future of financial inclusion lies in microfinance beyond credit," Jim Roth, principal at LeapFrog Investments, says in an interview. Edited excerpts:

What is the opportunity for a microinsurance fund in emerging markets?

While there were 43 microfinance funds globally  in 2004- which grew to around 103 funds in 2009-we are the only fund solely focused on microinsurance. Over one billion low-income people in India are seeking, and are able to pay for, insurance, but the market penetration is less than 9%. In 2009, the non-life microinsurance business alone pulled in over Rs 1,300 crore in premiums. There are currently 24 microinsurance plans registered with the Insurance Regulatory and Development Authority (Irda) by 15 commercial life insurers in India. Yet there is a huge growth opportunity as only five million people, or 2% of the poor, have microinsurance. 

We have raised $110 million and are committing $30-37 million in India... We have investments in the Philippines, South Africa and Asia. One of the key things about microinsurance is that it involves a low premium and low coverage limits, designed to service low-income groups and businesses not served by typical social or commercial insurance schemes. Since the ticket size is small, you have to capture large markets with a huge population. In countries with a small population like three million to five million, the market size is small. Large countries offer a rapid growth in financial distribution networks.