Unlike the West, endowment funds still a nascent revenue source for IIMs

Although the Indian Institute of Management (IIM) Ahmedabad may have announced its first endowment fund, the revenue source more prevalent with global business schools (B-schools) in the West may still be nascent for the Indian market.

Emulating major global B-schools like Harvard and Stanford for the first time, IIM Ahmedabad recently launched a Rs 100 crore endowment fund with the help of alumni with an aim to raise Rs 1,000 crore in five years.

The fund was launched with an initial commitment of Rs 100 crore from 10 founding alumni including the likes of InfoEdge founder and executive vice chairman Sanjeev Bikhchandani of 1989 batch and Makemytrip founder and group chief executive officer Deep Kalra of 1992 batch.

Unlike alumni contributions, dedicated endowment funds are formally managed corpus that ensure standardised processes for receipts and transparency in utilisation of the funds, monitored by managing committees comprised by faculty and alumni alike. 

While other IIMs have not explicitly shared any plans to launch such funds, the premier B-schools might consider the same in near future especially in the wake of other sources of revenues like programme fees and executive education programs taking a hit amid the Covid-19 pandemic.

Speaking on condition of anonymity, a director of one of the IIMs told Business Standard that the Board of Governors (BoG) might now be increasingly interested to look at such endowment funds. 

"The advantage of endowment fund is that it is the institute that makes the decision and a common pool is built in which commitments are made. So far, relatively compared to in the west, B-schools in India have not received that kind of money. But now our board may be open to considering such endowment funds especially since there will be some impact on program fees and executive education prices in the short run," the director said.

According to Himanshu Rai, director of IIM Indore, endowment funds are also a relatively new concept in India, especially in IIMs. 

"The Indian Institutes of Technology (IITs) have been receiving funds for some time now. One of the reasons is the smaller alumni base of Indian institutes than the larger universities in the west like Stanford etc. Moreover the larger universities abroad are over 300 years old and have multiple generations who have studied there, and that induces a very different kind of loyalty," said Rai, while adding that endowment funds can certainly be an alternate source of corpus. 

Rai opined that endowments allow access to more and regular streams of funding for the institution, thus making them less vulnerable to market fluctuations and externalities like the Covid pandemic.

"However, the usage of these funds comes with certain restrictions in that unlimited withdrawals are usually not permitted and the managing committee closely monitors the usage and application of these funds. By contrast usage of revenue from fees etc is the sole discretion of the institute leadership," he added.

Having taken charge as director of IIM Calcutta 18 months ago, Anju Seth has also set fundraising as one of the priority areas for action. 

"As a critical first step, we have created transparent processes to propel fundraising action in a manner that assures our donors that going forward, their valuable donations will be used in tangible ways with appropriate fiduciary mechanisms in place to further strengthen the Institute in moving towards our mission of global excellence. Our Board members and numerous alumni have been constructively and deeply involved in taking these initiatives forward. With our sincere appreciation to alumni donors who have been early movers in funding endowment of two faculty chairs, we look forward to continued momentum of numerous fund-raising initiatives," Seth told Business Standard.

On the other hand, alumni investors too are gradually warming up to the idea in India. According to the director quoted earlier, with most of the IIMs receiving grants from government, investors were a bit wary. However, after the IIM Act granted more autonomy to the premier B-schools, the user industry is warming up to contributions to endowment funds. "Also, now even institutes realise that to be a serious global player, funding is required," the director added.

Meanwhile, Rai said that executive education revenue streams may get affected in the short run, probably till December 2020. "However, if institutes are able to curate their offerings in the online mode the market potential is still significantly large," Rai added.