IntelleGrow Finds a New Way of Funding SMEs

There seems to be no shortage of loans for large infrastructure projects in India. Neither is there a dearth of investors for India’s many startups. But, what about early-stage social entrepreneurs who need funding, yet don’t want to part with a piece of their business?

A report released by the International Finance Corporation in 2012 had shown that 37 percent of the debt from SMEs cannot be serviced by existing financial institutions. IntelleGrow, the venture debt arm of Mumbai-based Intellecap (a consultancy and investment bank focusing on sustainable social enterprises in sectors such as clean energy, health care and education), is trying to tap into this space.

This September, it crossed Rs 100 crore in funds disbursed. Sanjib Jha, IntelleGrow’s CEO, saw an opportunity in funding entrepreneurs who could not put up the collateral for a conventional bank loan.

The company started funding SMEs in January 2013, and raised Rs 28 crore in March 2014 from Omidyar Network and the Michael & Susan Dell Foundation. It has already funded 60 companies and adds 3-4 firms to its portfolio every month.

Jha believes that IntelleGrow can become the vehicle through which large international development finance institutions can provide loans to small-and-medium-sized Indian social enterprises.

“An international lender would take four months to execute a deal. Five $1 million-deals would take 20 months. We could deploy that $5 million in one month.”

However, domestic banks are wary as many have burnt their fingers during the credit defaults of the 1999-2000 dotcom bubble.

When IntelleGrow first experimented by disbursing six- to-nine-month loans to SMEs in 2011, they found a 100 percent repayment rate. Financers will be hopeful that they can replicate that on a large scale.