This spring, the Michael & Susan Dell Foundation invested $500,000 in IntelleGrow, an Indian company that provides customized debt finance to small and growing businesses in India to support small- and medium-enterprise (SME) startups. The Dell Foundation's most recent show of support for IntelleGrow follows the foundation's investment of $1 million in February 2013. At that time, Dell's donation equaled 2/3 of of IntelleGrow's total loan portfolio.
The Dell Foundation's IntelleGrow gift shouldn't surprise anyone given this funder's interest in India, and also its embrace of impact investing—which the foundation says aims "not just to help socially driven entrepreneurs launch new products, but to open new markets that routinely provide families living in urban poverty with access to the best-in-class financial, educational and other tools that can help them transform their lifetime prospects."
IntelleGrow's quantitative approach and quantifiable success make it a natural fit for the metric-focused Dell Foundation. The venture debt company estimates that the more than 60 SMEs it has financed since 2010 have improved nearly 1.7 million Indian lives through job creation and the social impact of its clients' SMEs working on healthcare, agricultural supply, clean energy, education, finance, and water and sanitation.
IntelleGrow's positive impact doesn't stop at the Indian border; the firm estimates that IntelleGrow-financed SMEs have prevented the release of 89 kilotonnes of carbon dioxide equivalent into the environment, slowing the pace of climate change worldwide.
The Dell Foundation's 2013 IntelleGrow investment wasn't its first. The foundation collaborated with the Shell Foundation and Intellecap, a financial social enterprise that targets its investments to positively impact the "base of the economic pyramid" worldwide, to provide IntelleGrow with seed funding to get started. The Omidyar Network also boosted IntelleGrow this March with a $4 million demonstration of confidence in the venture debt company's mission.
IntelleGrow's policy of only funding startups focused on education, healthcare, clean water, sanitation and a few other socially beneficial sectors meshes well with two of the Dell Foundation's development emphases within India: access to basic education and childhood access to health-promoting resources, including clean water and medical care.
Satyam Darmora, the Dell Foundation's family economic stability director in India, stated that IntelleGrow's successful use of the foundation's earlier investment to “expand and scale while supporting early stage organizations in the education and health sectors... aligns with the Michael & Susan Dell Foundation’s mission to catalyze high impact education, health, and family economic stability organizations and programs.”
Impact investing remains a secondary focus of the Dell Foundation, and it is very selective about which groups it invests in. Most of Dell's annual outlays still take the form of grants. But the foundation is much further along in this area than most major foundations, and clearly determined to be at the forefront of the fast expanding frontier of impact investing.
So how does the Dell Foundation's partnership with IntelleGrow benefit India's SMEs? By helping IntelleGrow fill a gap in the mainstream Indian finance system.
India hosts a strong entrepreneurial culture, but fast-growing SMEs often face a cash crunch because most Indian lenders require collateral before they will provide a loan. Mainstream lenders also require businesses to record at least three profitable years of operation before they will consider providing capital. Even SMEs that can pony up the collateral requirement and demonstrate the requisite historical success can be hamstrung by the pace of loan processing and capital disbursement in conventional Indian SME finance.
For relatively fast-growing SMEs, the Indian finance system can halt cash flow and sabotage a would-be success. IntelleGrow addresses the three snares of Indian SME finance by evaluating applicants on the soundness of their business plans and operations rather than collateral availability and current profitability, processing loan applications relatively quickly, and basing repayment schedules on anticipated cash flow rather than amortization of principal and anticipated interest.
Repayments on IntelleGrow's loans may eventually enable the organization to support a large share of India's SMEs without outside further investments, but successful SMEs can take years to achieve profitability. Until that time, support from the Dell Foundation and other philanthropies is vital to the expansion of IntelleGrow's service to India's SMEs.