Information on the Target

Northern Arc Capital Limited, founded 15 years ago, is a prominent non-banking financial company (NBFC) in India, dedicated to providing access to credit for underserved households and businesses. The company has significantly impacted low-income communities, especially empowering low-income women who operate micro, small, and medium enterprises across rural and regional areas of India. Since LeapFrog Investments became its first institutional investor in 2014, Northern Arc has witnessed substantial growth, with its assets under management reaching $1.4 billion, a 22-fold increase. This growth is facilitated by its innovative lending technology, enabling the flow of over $20 billion in credit and benefiting approximately 101 million individuals.

Industry Overview in India

The Indian microfinance and inclusive finance sector have seen tremendous growth in recent years, driven by a rising demand for financial services among underserved populations. With 1.4 billion people, a substantial part of India lacks access to traditional banking services, creating a prime market for NBFCs like Northern Arc. The expansion of digital technology has played a pivotal role, enabling greater reach and efficiency in delivering financial services to these communities.

Regulatory support has also advanced the industry, as the Indian government promotes financial inclusion through various initiatives aimed at empowering marginalized segments of society. Non-banking financial companies have emerged as key players, filling the gaps left by traditional banks, particularly in rural areas. This evolving financial landscape has attracted a growing number of domestic and international investors focused on social impact.

Furthermore, the global emphasis on sustainable investing aligns well with the objectives of Indian NBFCs. Investors are increasingly recognizing the importance of financial inclusion as a vital component of economic development, particularly for empowering women and promoting entrepreneurship. The potential for returns, both financial and social, presents an attractive opportunity within the Indian financial services industry.

The Rationale Behind the Deal

The recent partial exit by LeapFrog Investments through Northern Arc’s initial public offering (IPO) is a testament to the success and sustainability of its business model. The IPO, which raised approximately $60 million, was heavily oversubscribed, reflecting strong investor confidence in the company's growth and long-term prospects. LeapFrog's initial investment, aimed at supporting Northern Arc's mission, has resulted in more than tripling of capital, which underscores the viability of investing in purpose-driven companies.

This deal not only validates LeapFrog’s investment strategy of generating financial returns alongside social impact but also positions Northern Arc for continued success in the burgeoning inclusive finance sector in India. With a significant remaining stake of 16% in the company, LeapFrog retains a beneficial interest in its future growth.

Information About the Investor

LeapFrog Investments is a pioneering private equity firm focused on making profit with purpose investments in emerging markets, particularly targeting companies that provide critical services to underserved communities. With a track record of identifying and backing scalable businesses in healthcare and financial services, LeapFrog aims to generate positive social impact while delivering attractive financial returns for its investors.

Since its founding, LeapFrog has supported numerous initiatives and companies, creating significant market value while unlocking potential for millions of individuals to access essential services. The firm’s approach combines strategic financial backing with hands-on support, facilitating growth in portfolio companies and ensuring alignment with their mission to create lasting societal benefits.

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The recent partial exit by LeapFrog Investments via the Northern Arc IPO represents a strategic milestone, showcasing both financial success and commitment to social responsibility. Given Northern Arc’s impressive growth trajectory amidst rising demand for inclusive finance, the investment has proven to be a sound choice for LeapFrog, yielding substantial returns while maintaining a focus on underserved populations.

Furthermore, the positive market reception of the IPO, with heavy oversubscription, indicates a strong belief in Northern Arc’s future. The combination of maintaining a significant ownership stake while realizing early returns suggests that LeapFrog's exit strategy was meticulously planned, allowing them to capitalize on market conditions while simultaneously endorsing the ongoing mission of Northern Arc.

Overall, the collaboration between LeapFrog and Northern Arc exemplifies how financial investments can align with social outcomes, affirming that investments in sustainable and socially focused enterprises can yield excellent returns. This strategic partnership positions both entities favorably for future endeavors in the expanding financial services landscape in India.

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