India has an estimated funding gap of more than $10 billion for the kind of enterprises targeted by IntelleGrow. The venture debt non-banking finance company (NBFC) is currently lending to early-stage SMEs in clean technology, education, financial inclusion, agriculture, medicine and alternative energy. The startups need money to bring their business to the next level, says Jha: ‘These companies already have a profit-loss account and good management in place, but most of them are still very small and not yet profitable. Because of their size, their lack of a track record and collateral, they are of little interest to the regular banks. We are trying to bridge the gap by solving their cash flow problem.’

At Intellecap, Jha was advising SMEs on how to grow into a larger, more profitable and more sustainable business. Founding IntelleGrow seemed like a logical next step. In 2010, after raising $20 million in capital, IntelleGrow filled the void in the market by financially supporting SMEs through difficult stages and ultimately, catering to a segment for which no formal bank loans are available. Jha: ‘We have a good understanding of the challenges faced by these small businesses. We understand what scalability is about. For me personally, it is about doing something useful with your life. Maybe I now make 8 instead of 10 rupees profit, but we are doing something special here – creating a whole new asset class and financing companies that are creating inclusive growth. This gives me personal satisfaction.’

Orb Energy is a company a part of IntelleGrow’s portfolio. Orb Energy manufactures, assembles and retails solar water heaters and photovoltaic systems for domestic and commercial uses.
Orb Energy is a company a part of IntelleGrow’s portfolio. Orb Energy manufactures, assembles and retails solar water heaters and photovoltaic systems for domestic and commercial uses.

Since 2010, loans have been given to 60 companies. On average, a loan has a duration of two years and can range from $100,000 to 1.5 million; forty percent of the loans are repeat loans to the same company, which is in line with IntelleGrow’s business model, as it sometimes takes longer than two years to bridge the gap to regular financing.

IntelleGrow was founded by Intellecap with support from the Shell Foundation. Hivos-Triodos Fund provided a €2,5 million loan in October of 2014 as well and Jha is trying to find more interested parties that understand what IntelleGrow is trying to do. ‘Parties like Hivos-Triodos understand what we are trying to do and that we are providing financial services beyond a strictly commercial purpose.’

More than money

Jha is not only trying to raise capital, but he is also trying to interest European and US professionals into joining IntelleGrow, ‘We have a staff of 19 now, of whom 12 are selecting the businesses we fund. We need more talent. We have that in India of course, but we want people from other parts of the world as well.’

Finding the right SMEs with such a small staff in a big country like India is not easy, but IntelleGrow has its own strategy, ‘We are entrenched in the big management institutes in Bangalore and Ahmedabad. We have excellent connections with the Indian Institute of Technology in Bombay. There are a lot of young entrepreneurs with great ideas in India and those are the incubators where we can find them.’

Jha is very enthusiastic about the companies IntelleGrow is supporting; SMEs that bring products, jobs and money to India’s rural population. Orb Energy for instance is supplying solar energy products to villages. Jha: ‘India has an ambitious programme for alternative clean energy. To promote the use of solar energy, the government provides subsidies, which has attracted a lot of new entrepreneurs. However, it takes about one to two years to get the subsidy. In the meantime, there is a big finance gap for these businesses, and that is where we come in. We provide the money to bridge that period.’

Rural ATMs

A  simple invention can have a large environmental and financial impact. Sedemac for instance builds devices that power off motorcycles while at traffic lights. IntelleGrow also finances hospitals and small companies in the financial inclusion businesses. ‘We provide loans to companies, such as EPS, that build ATMs throughout India. It is difficult to get to a bank in Indian countryside. In the next ten years, every village will get an ATM. That will make a big difference. It will be much easier for Indians who are employed elsewhere to send money back to their families in their home villages. From now on, they will only need to open an account that the family has access to.’

One of the more surprising companies IntelleGrow finances is e-dabba, a successful online store that provides the Indian countryside with luxury goods and clothing that are normally only available in big cities. While this might sound like an unusual addition to their portfolio, Jha explains why e-dabba can positively impact rural India, ‘I come from Bihar, one the poorer regions in India. All families have male members working in one of the big cities. These men are attracted to the cities for the wrong reasons. The pay is not that much higher than in Bihar, but the cost of living is. In Bihar there are jobs as well, but the fancy living is unattainable. If you can access every luxurious item you would need from a website, there is one less reason to migrate to the big city. The hope is that people will stay in their own region and contribute to the local economy there.’

In the meantime, there is a big finance gap for these businesses, and that is where we come in. We provide the money to bridge that period.
Sanjib Jha

Competitors wanted

IntelleGrow measures its success by the percentage of SMEs that grow into larger companies that can then attract money from the regular banks. Success, however, is also counted through job creation and the number of lives affected by the companies they are financing. Companies like Orb and EPS (ATMs) have become important players in their field and are contributing to inclusive growth.

The venture debt business has only just taken off, according to Jha. IntelleGrow is growing fast. For 2015, the goal is to bring total assets to $30 million. Jha explains: ‘There is immense demand which IntelleGrow alone can never provide for. I hope that more companies like us will start. We are the frontrunner right now. As nice as that is, it is never good to be a monopolist. We need competitors to keep us focused and to make the most of all the good ideas and ambitions among first-generation entrepreneurs.’

For an overview of our activites in emerging markets, please visit the Emerging Markets investment strategy page.

Curated content originally posted on Upsides.
The rights of all images of the article belong to Orb Energy.