In an interview with the Health Finance Coalition, Noorin Mawani, co-lead of the pan-African recently- closed Transform Health Fund (THF), discusses the fund’s innovative blended-finance structure, which aims to bolster healthcare systems in Africa by scaling proven and innovative healthcare models. Earlier this month, AfricInvest and The Health Finance Coalition (HFC) announced the Transform Health Fund exceeded its initial target in its final close, raising $111 million, through commercial, public, and private donor investments.
What makes the Transform Health Fund unique?
MAWANI: What makes the THF unique is its investment strategy that focuses on reaching low to middle income patient populations in Africa which today lack accessible and affordable healthcare
Too often, healthcare investments target companies serving middle- to high-income patients. That’s been for a few reasons: First, investors with high target returns tend to focus on patient populations with a dependable ability to pay. Unfortunately, in many African countries, less than 10% of the population has private health insurance. And while public healthcare systems dominate, many people rely on out-of-pocket payments for medical expenses, and yet to not have the means to cover them. The second reason healthcare investors target companies with higher income patients is geographical. These companies are typically located in large cities and so they are better known.
THF’s focus on low-income patient populations is made possible by a blended capital structure at the Fund level, that allows us to focus on companies expecting moderate returns.
Can you describe how blended financing is used?
MAWANI: With blended financing, different types of capital (with different return requirements) are combined into one fund structure. In more traditional funds, there is just one type of share class for all investors who all receive the same terms.
By combining investors with different risk and return expectations, it is possible to “grow the pie,” or catalyze investors who may not have otherwise had the risk appetite to invest, and providing the opportunity for Africa to see a greater share of international capital flows.
Where does the Transform Health Fund fit into the health financing ecosystem?
MAWANI: The health financing ecosystem is extremely wide, spanning donors who give philanthropic grants to larger institutional players like UNICEF, the US government, PMI Healthcare and many others.
I think about the providers of finance on a continuum of returns. On one extreme, there are those who do not expect even the return of their principal, providing grants and donations. Many are motivated by the belief that the provision of adequate healthcare is a basic human right, and grant financing is sometimes required to help ensure this
In the middle, there are those interested in supporting health in emerging markets given their development impact agenda, who still require a rate of return, but perhaps not a fully market adjusted rate of return. Think of a development finance institution – e.g., BII or IFC. They use limited taxpayer money to drive development in the least developed nations across the world but require a return to sustain their ability to invest.
Moving across the spectrum, the financing available becomes increasingly commercial in nature. Market returns are expected and while impact is an important outcome, it is not necessarily the primary intention of the investment.
This continuum is a necessary feature of the healthcare finance ecosystem. There are some parts of the market, some subsectors, some geographies, where pure commercial investments are unavailable, and philanthropic capital has a critical role to play.
In my view, there is a place for all types of capital – across geographies and across different subsectors. However, it is critical that the right capital is being used for the right kinds of projects. Commercial money should not be used for something that should have been funded by grants, potentially leaving commercial investors disappointed. At the same time, using grant or donor money for a commercial investment is not an efficient use of precious grant dollars.
That’s the challenge for us all making sure we’re matching our capital and the requirements of our capital to the type of risk and expected return of the projects.
What does it mean to be impact focused? And where do you see the most healthcare impact?
MAWANI: For me, being impact focused is basically identifying the kind of impact you’re trying to achieve, and then aligning your internal processes, your fund governance, and your incentives to achieve that objective.
For example, we consider ourselves impactful, because we’ve stated what our impact policy is, and we have a way to govern that. We have an investment committee process that considers impact votes on whether a project is sufficiently impactful.
We also have incentives tied to impact. For our investors and for ourselves, it is not enough to just deliver financial returns and so it is only fair that our incentives are ties to impact.
What challenges exist for scaling healthcare innovations in Africa and deploying capital?
MAWANI: One of the challenges we face, like other sectors in Africa, is the ability to pay. To increase access to healthcare services, either the services must become more affordable or the patient’s ability to pay must improve.
The challenge in Africa is that both of those are difficult. It’s hard to bring down the cost of healthcare, especially since he primary input into the cost of healthcare is labor. There are just not enough trained medical staff on the continent. And even those trained in the medical profession on the continent are tempted to leave for other markets where there’s more financial opportunity.
The other big challenge is the cost of drugs and pharma. Africa doesn’t manufacture adequate supplies of pharmaceutical products for its population and while there are efforts to encourage local production, many barriers still exist: The cost of energy is high, financing isn’t always available, and prices of products from other emerging markets are extremely competitive.
On the other hand, helping to improve a patient’s ability to pay is typically driven by two things: First, increasing income, a variable that it not in the control of healthcare investors. Secondly, increasing the availability of health insurance. While improvements in this regard are underway in some markets, it is a long road, and often requires government intervention and regulatory support.
Despite these important challenges, they are part of what makes African healthcare investing so exciting and such a big opportunity.
That’s where the innovation comes from, particularly companies targeting decreases in the customer cost of care.
With this final close, would it be fair to say you’re optimistic?
MAWANI: Definitely. I think we’re very optimistic because of achieving this final close of THF for an amount surpassing our target. As you can see, the is a great deal of interest and drive from investors to finance companies providing innovative solutions to some of Africa’s most pressing healthcare challenges.
And from the investments we’ve made so far, we’ve found incredible opportunities to solve for affordability. Still, this is by no means an easy sector. But we’ve found really strong entrepreneurs who are finding ways to drive innovation.
Finally, we are inspired by our investors, because at the end of the day, we’re a conduit for their money. It’s still their money and they’re still taking the risk.
So, our optimism is driven by both investors, as well as the hard work being done by the entrepreneurs themselves. While we are pleased with the success of the Transform Health Fund, investors and entrepreneurs are really the ones that are going to solve Africa’s healthcare problem.
Financing is just one piece of the puzzle that we try to unlock for them.
Q: Can you talk about Health Finance Coalition’s Transaction construction role in the fund? How does HFC’s support enhance THF’s investment process?
MAWANI: The Health Finance Coalition (HFC) plays a crucial role in structuring transactions that drive the development and execution of investment opportunities, strengthening THF’s pipeline, value proposition to companies, impact, and overall fund performance. HFC provides healthcare companies with strategic, financial, impact, and transaction structuring support, offering customized solutions that enhance their readiness to attract investment from partners like THF.
A recent example of this work is HFC’s collaboration with THF’s investee – Lapaire, an optical retailer operating across Africa. HFC assisted Lapaire in assessing strategic, high-impact opportunities designed to generate sustainable financial and social outcomes. By aligning management on the optimal strategic growth path, HFC helped Lapaire maximize impact while safeguarding THF’s investment value.
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