What ails Philanthropy and NGO initiatives in India? [Part 2]

Having broadly covered the background of giving through individual philanthropy and by companies through CSR statute in Part 1 of this series, this article continues in providing insights into why many credible NGOs are struggling to generate funds and are forced to curtail activities as they mainly depend on external funding to implement their projects.  

• India has an estimated 3.2 million NGOs which are registered under various statutes including mainly, the Indian Trusts Act, Cooperative Societies Act and Indian Companies Act [Section 8 and earlier Section 25].   
• While there are too many NGOs in India, the level of confidence most of these command, is quite limited, as many are either dormant or tend to have various deceptive agendas like tax evasion, foreign exchange dealings for illegal purposes, image building in local community, maintaining prestige through religious funding etc. Only a few thousand have been evaluated and rated by professional agencies for genuineness and ability to implement projects competently, reliably and with integrity.
• To capture this scenario, Bain & Co., the globally renowned consultancy firm in its latest Indian Philanthropy Report has chosen to categorize and then bring out their traits.  Excerpts from their report are as follows:

Emergence of a two-tiered space in philanthropy

The India Philanthropic Report 2015 states that as things stand, the low credibility of nonprofit organizations and donor apathy have turned philanthropy in India into a “two-tiered” space.

•  Tier 1 comprises sophisticated donors who work with sophisticated, highly credible nonprofit organizations and thus drive a positive spiral.
•  Sophisticated donors are typically wealthier and have given consistently and for longer periods of time to causes they strongly identify with. They not only contribute cash but also provide oversight and guidance.
•  Sophisticated nonprofit organizations tend to be larger and have the organizational capacity and discipline to deal with sophisticated donors. As a result, they tend to produce superior outcomes that in turn attract many more sophisticated donors. This puts the nonprofit on a positive spiral of organizational growth, increased capacity and social impact.
•  A vast majority of the larger trusted nonprofits have high numbers of repeat donors. Moreover, 64% of them said that they have received repeat donations from more than 50% of their donors). However, only 31% of small nonprofits have repeat donors as the majority of their donors. 

• In Tier 1, however, there is a risk of donor interest being captured by a relatively narrow set of causes, which then tend to get a disproportionate share of contributions and most of the media attention. 

• As far as the smaller NGOs are concerned, they generally have an unsophisticated donors and are listed as Tier 2 in the Bain Philanthropic report and are  creating the “NGO trap”. 

• The Tier 2 space comprises unsophisticated donors who donate out of a sense of guilt and are constrained by a lack of information about which organizations to donate to and how. 

• Guilt-driven donors tend to react to specific events (for example, popular campaigns). Typically, they have less experience donating and are also relatively less wealthy. A majority of donors in India belong to this category and donate based on personal relationships or media-driven trends rather than enduring interest in a cause.
•  Tier 2 also includes unsophisticated nonprofit organizations. These organizations have poor organizational capabilities and reporting structures, making them less credible and unable to attract Tier 1 donors. This leaves them trapped in a perennial fund-raising cycle, “chasing the next 1 lakh rupees”, as a veteran in this space put it.
•  The Bains survey found that 83% of the respondents from larger nonprofit organisations [Tier 1] were satisfied with the level of funds they had, whereas only 63% of respondents from the smaller ones said they had sufficient funds [Tier 2].
•  The unsophisticated nonprofits get trapped in a negative spiral—a constant pursuit of new donors, which leads to a reduced focus on results in favor of fund-raising. They attract relatively new donors who seek low overheads, which in turn means there are fewer resources to build organisational capacity. This results in suboptimal outcomes and leaves donors dissatisfied and unwilling to donate again. Consequently, these organisations’ pursuit of new donors continues. 

The Bains Report also identifies the gaps and offers meaningful solutions below:

Clearing the bottlenecks

It is important that all stakeholders—nonprofit organisations, support networks and donors—come together and work on critical elements. Three areas of focus should be: greater cause orientation among donors, better transparency in nonprofit functioning and collaboration of resources. Focusing on these areas will ensure that the next wave.

Greater cause orientation among donors

1. Cause-oriented donors are more loyal.
2. This means they provide consistent funding to the NGOs they choose and, hence, reduce the organisation’s focus on fund-raising.
3. Their involvement goes beyond cash donations; they provide oversight and bring in discipline, helping nonprofits operate more effectively and efficiently.
4. Such donors can also be force multipliers for fund-raising by harnessing their own credibility and relationships to act as aggregators of disconnected donors and, over time, may emerge as evangelists for the causes they champion.

Transparency in nonprofit functioning

1. The philanthropy space in India is sorely lacking in tru One of the top findings from our survey and interviews was that donors seek trust, so they gravitate towards relationships rather than causes. This reality is in many ways responsible for the fragmentation of the philanthropy space into two tiers.
2. Greater transparency in nonprofit functioning, which may add slightly to overhead costs, goes a long way in building trust with donors. Some basic requirements of greater transparency are practices such as tracking, reporting and communicating results and details of fund utilisation.

Collaboration for greater efficiency and impact

1. Donors rate transparency, demonstrated impact and low overheads as their top expectations of nonprofit organisations (see Figure 11). Nonprofits need to use available resources and talent for the best outcomes. Collaboration and resource sharing across nonprofits is the way forward. This will lead not only to optimal resource use but also to the dissemination of best practices. Collaboration, however, is not easy. 

1. Most nonprofits, particularly the smaller Tier 2 ones, tend to be founder-centric, displaying a propensity to control and stay entirely focused on their specific grassroots segment. To change this, nonprofits and stakeholders that are open to collaboration should work to draw attention to its benefits. 

1. Some 64% of our NGO respondents said there was a need for partnerships among different stakeholders in the philanthropy space. 

Figure 11: Excerpt:  Donors’ top expectation of nonprofits:

 Transparency scores the highest as the highlighting demonstrates. 

     Note: Sum may not be 100% due to rounding. Source: Bain India HNWI survey 2015 (n=377)

 Agenda for the future

 To ensure the above areas are addressed, it is important to define clear roles for all the stakeholders in the philanthropic space. Activist donors should encourage discipline among nonprofit organisations, which will increase transparency. Nonprofits need to increase cause orientation among donors. Support networks must enable the collaboration of resources and define a standard set of criteria to evaluate nonprofits (see Figure 12).

 Activist donors

 The philanthropy space in India needs more “activist” donors: either individuals or corporations who not only donate money but also provide their time, skills and resources to help nonprofit organisations build their capabilities. This includes oversight support, which in turn would encourage “donor discipline” and help nonprofits to improve their effectiveness and efficiency. However, there is a fine line between oversight and policing, and it will be critical for donors to stay on the correct side of that line.

 Nonprofit organisations

1.  Nonprofit organisations need to make donors more cause oriented. They can do this by working more closely with donors rather than maintaining relationships at arm’s length. The more a donor sees a nonprofit in action, the more likely he or she is to see the value of its work and to become more consistently involved with the cause it champions. 

1. Nonprofits need to maintain appropriate levels of communication on operations, tracking project development and reporting results. 

1. As per Table below, the philanthropy agenda for the future includes actions for all stakeholders

 4. Support networks 

Support networks are critical to making nonprofits more effective. These networks need to experiment with and develop “sharing models” for nonprofit organisations to help them use limited overheads in a manner that allows them to do what they do best: make a positive change at the grassroots level. 

The NGOs can experiment with such professionals and consulting firms that provide shared back-end and support functions across organisations, which would offer them scale benefits and help them adopt best operational practices. This will make such high end services accessible and affordable to even mid sized but growth oriented NGOs. 

1. Standards to assess nonprofits 

1. A standard set of criteria for assessing nonprofit organisations would go a long way in making the philanthropy space in India more donor friendly. In the corporate world, rating agencies provide a valuable service by assessing companies, allowing shareholders to stay informed and bringing transparency to the space. 

1. Nonprofit organisations need their own version of this: 

1. defined criteria for assessing their effectiveness (results and impact) and
2. efficiency (overheads). 

This will make the trade-offs of donating to one organization or another clear to potential donors. 

Independent agencies and support networks can work with nonprofits of all sizes to settle on a standard set of criteria for assessment. A set of standard criteria that also considers willingness to collaborate and learn may be a way forward. We have seen such examples in other countries. Independent agencies such as Charity Navigator in the US and Dasra in India, evaluate charitable organisations, creating a more efficient and responsive philanthropic marketplace in which donors and nonprofits can work in tandem. 

NGO involvement in CSR initiatives – challenges faced

While the above findings apply to all types of donors, some key challenges that many NGOs faced in attracting CSR funding from companies and while being involved in CSR projects, are listed below: 

1. Work culture and professionalism between companies and NGOs is not in sync. : The first year of mandatory application of CSR law in India as enacted by Section 135 of  Companies Act 2013, though a step in the right direction, was not very successful in terms of expected compliance.    One fundamental reason quoted was the difference in work culture and outlook between the companies and the NGOs chosen by them as implementing partners.  Companies of the private sector and MNCs are professionally run in many cases and expected quick turnaround and professionalism in implementing the project and attaining intended outcome.   On the other hand, NGOs are more likely to work with a longer turnaround time and an informal mode of functioning, with lesser degree of transparency and accountability for deliverables. Consequent lack of communication and differing wave length between the companies and participating NGOs, that may be detrimental to the effective and efficient implementation of CSR projects. 

1. Narrow Perception towards CSR Initiatives: NGOs and Government agencies usually possess a narrow outlook towards the CSR initiatives of companies, often defining CSR initiatives more donor-driven than local in approach. As a result, they find it hard to decide whether they should participate in such activities at all in medium and long run. 

1. Lack of Community Participation in CSR Activities: There is a lack of interest of the local community in participating and contributing to CSR activities of companies. This is largely attributable to the fact that there exists little or no knowledge about CSR within the local communities as no serious efforts have been made to spread awareness about CSR and instil confidence in the local communities about such initiatives. The situation is further aggravated by a lack of communication between the company and the community at the grassroots. 

1. Need to Build Local Capacities: There is a need for capacity building of the local non-governmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR initiatives and subsequently limits the scope of such activities.

1. Issues of Transparency: Lack of transparency is one of the key issues brought forth by the survey. There is an expression by the companies that there exists lack of transparency on the part of the local implementing agencies as they do not make adequate efforts to disclose information on their programs, audit issues, impact assessment and utilization of funds. This reported lack of transparency and reluctance to share information, negatively impacts the process of trust building between companies and local communities, which is a key to the success of any CSR initiative at the local level.  

1. Non-availability of Well Organized NGOs: It is also reported that there is non-availability of well organized nongovernmental organizations at both urban and rural areas that can assess and identify real needs of the community and work along with companies to ensure successful implementation of CSR activities. This also builds the case for investing in local communities by way of building their capacities to undertake development projects at local levels. 

1. Visibility Factor: The role of media in highlighting good cases of successful CSR initiatives is welcomed as it spreads good stories and sensitizes the local population about various ongoing CSR initiatives of companies. This apparent influence of gaining visibility and over enthusiasm in branding exercise and image building, often leads many NGOs to involve themselves in event-based programs; in the process, they often miss out on meaningful grassroots interventions which would ironically would place them in a more respectable position in the longer range. 

1. Lack of Consensus on Implementing CSR Issues: There is a lack of consensus amongst local agencies regarding CSR projects. This lack of consensus often results in duplication of activities by corporate houses in areas of their intervention. This results in a competitive spirit between local implementing agencies rather than building collaborative approaches on issues. This factor limits company’s abilities to undertake impact assessment of their initiatives from time to time.

Conclusion

The article in two parts, highlights some important aspects of philanthropic giving and concludes by summarizing the various roles and expectations as follows:

1. Role of individual donors: Giving is not necessarily the prerogative of the affluent and larger companies, though these sections are expected to do more in current times when the economic divide among the population is inequitable. In a country like ours which is grappling to provide even basic amenities for its burgeoning population, involvement at grass root level by right thinking individuals from all walks of life by being active donors, can be a decisive step towards being socially responsible and make a broader impact for the lesser privileged and to support worthy causes. 

1. Role of professionals: There is a dire need of professionals of various disciplines who are willing to devote time and efforts for identifying, evaluating and building capacities for companies and genuine NGOs to ensure that they are scalable and they can also guide and assist with raising funds for the effective and timely implementation of worthy social projects. Professionals can play a pivotal role by acting as facilitators between companies, NGOs and government agencies operating within the statutory framework and help reconcile differences to ensure uninterrupted support for the projects.                                                                                                   Finance professionals can assist with setting up NGOs, ensuring that they have established systems and processes for accounting, budgeting, project management and reporting that are commensurate with the size and complexity of operations, in developing Standard Operating Manuals [SOPs] and defining organization structures and job roles.   The consultant can ensure statutory compliance and guide companies and NGOs on an ongoing basis in successfully executing CSR projects, optimizing resources and attain envisaged outcomes through effective follow up that correct adverse deviations, should these occur.  These professionals can also help with conceptualizing socially relevant projects for implementation. 

1. Role of NGOs: NGOs have to be actively involved in the permissible areas of social causes as set out in their constitution. They have to identify suitable projects for implementation with clearly  defined outcomes, to invite donor interest.  Rather than continuously and aggressively seeking individual donations through fund raising that overshadows their grass root level interventions, NGOs will have to improve their visibility and  be professionally prepared to be more accountable, transparent and aim for faster turnaround in line with expectations of their donor partners in development.  They should have a process orientation and be seen as an entity scalable and competent to be implementing partner for the companies and maintain ongoing communication with all donors and stakeholders, besides their funding agencies. 

1. Role of companies: Companies are expected to play a key role in driving social change and complement the efforts of the government and social sector in such initiatives, through following the CSR statute in form and spirit of the law.  Companies should be aiming for sustainable growth in terms of having a broader responsibility encompassing a larger section of stakeholders that include social and environmental priorities in addition to their economic goals.

All the above participants, if they function in tandem and effectively coordinate between themselves to prevent overlaps and confusion in addressing key social issues in the areas where they operate, could go a long way in solving issues and reaching out to beneficiaries that governmental agencies could be sufficiently serve.

Finally, one has to bear in mind, that organizations consist of people, be it a company, or an NGO.  So it ultimately matters whether the people behind such organizations, be it directors, trustees, managers, CEO, CFO, COO, employees, shareholders, suppliers, customers, all have to be socially responsible for these organizations to be socially responsible.  

Though initially we need to understand and stay updated on macro level social issues and stay abreast with developments, we can do even better by imparting that knowledge and awareness to others and play  a role in sensitizing others to understand the magnitude of the problem and guide others to play a role in being socially responsible. 

Lastly, I am often reminded of the quote of Edmund Burke: 

"All that is necessary for the triumph of evil is that good men do nothing."  

While awareness and keeping updated is essential, most important of all is to act. Each one of us can as possible, accord  some priority and get involved in grass root level interventions, by devoting time, efforts and money aimed at solving some social issue/s for target beneficiaries or to contribute actively towards such initiatives and inspire others to do as well.