Changing credit risk perceptions of rural Indian social enterprises

In countries such as India, traditional philanthropic activities (grants) for short-term results is main-stream and market- based, mission-driven enterprises working on innovation for long-term sustainability remain capital starved. The traditional capital markets are also short-term and risk-averse and given the huge demand, find it easy to exclude social businesses. The result is that  high-impact potential innovative enterprises which serve marginalized populations do not have access to suitable capital that is affordable and flexible. We find in our work that market inefficiencies hinder private investments and there is a dire need to  bridge the gaps through structures such as risk mitigation for loans, returnable grants, catalytic equity etc.  The problem is finding ways to mobilize philanthropic resources and leverage it to channel capital market funds toward high-impact solutions. And doing this in a scalable way rather than ad-hoc efforts.

Our question was ‘how can we create structures that are flexible in funding the enterprises and the unique demands of the communities they serve”?  Inkludo Impact has partnered with Villgro, based in India, to attract global capital and create structures that will catalyze access to credit. Inkludo would connect traditional finance with community-focused investment models. Through innovative approaches that blend philanthropy with scalable investment, Inkludo creates a financial stack that meets the risk-return requirements of the ecosystems in a way that is equitable  and sustainable.  Our hack emphasizes the creative use of philanthropic capital to enable enterprises serving underserved communities to access new financial resources and scale their impact by mobilizing commercial capital. This requires understanding the legal and regulatory requirements to structure vehicles that are suited to receive funds from different stakeholders in a way that meets the risk-return requirements. Importantly, the structuring and governance must be accommodative of the needs of the communities that the social enterprise serves.  The key work will build on the pilots around first loss default guarantees and credit guarantees. On one end, the goal is to understand the key requirements of the social enterprises from their immediate needs and what will enable them to go up the credit ladder. On the other, working to provide safety nets for all stakeholders, including the capital providers.  Besides the capital part, we also plan to collaborate with local ecosystem builders to leverage innovations and provide hands-on support for the development and growth of these innovative enterprises. This includes focus on data and tools to not just gather information / intelligence for better decisions but also use these to help alleviate perceived risks. We have not specifically thought of the UK context but in general, the hack would require understanding legal structures and terms for capital flows to social enterprises, especially for guarantees.  We are considering exploring organizations such as Sovereign Wealth Fund Institute which also operates in the UK. Key components of the hack: 1. Redefining Fiduciary duty: Inkludo shifts the definition of fiduciary responsibility from merely preserving wealth or generating financial returns to prioritizing social return on investment. Through Program-Related Investments (PRIs) and other blended finance structures, we align financial incentives with long-term community outcomes. This approach allows investors and local financial institutions to support sustainable, mission-driven enterprises without compromising their fiduciary obligations. 2. Balancing Business Growth with Social Impact: Social enterprises often struggle to meet conventional financial metrics, limiting their access to mainstream capital. Inkludo helps social enterprises become financially sustainable by offering capacity-building programs that focus on strengthening business models, managing cash flow, and generating growth while maintaining their social mission. This P&L accountability ensures that social enterprises can attract both impact investors and commercial capital. 3. Empowering Communities through Participatory Governance: We understand that effective financial solutions must be grounded in the actual realities and needs of the communities they serve. Therefore, we engage directly with farmers and underserved populations in the design of our funding initiatives. By adopting a bottom-up approach to fund development, we ensure that market gaps are accurately identified and addressed through participatory governance. 4. Creating Long-Term Financial Solutions: Inkludo’s Revolving Loan Funds (RLFs) are designed to recycle wealth within the community. As loans are repaid, they are reinvested into new enterprises, creating a self-sustaining ecosystem that reduces dependency on external capital. Additionally, the use of Standby Letters of Credit (SBLCs) de-risks local lending, ensuring that more inclusive financial systems are developed to serve the community. 5. Cross-Border Financial Innovations: By leveraging global capital markets and innovative financial instruments, Inkludo connects social enterprises in the Global South to international sources of capital. This cross-border flow of funds brings new opportunities to underserved regions while ensuring that investments are geared toward long-term impact rather than short-term gains.

1. Increased access to affordable and catalytic capital into social enterprises and marginalized communities. 2. Greater community control over capital allocation and wealth distribution. 3. Enhanced social, environmental, and economic outcomes tracked through impact metrics. 4. Creation of innovative instruments and structures replicable across geographies and impact sectors for better social and environmental outcomes