- When COVID-19 spurred a nationwide lockdown in India in 2020, a grave need for localised social support emerged.
- Giving, both private and public, flowed to NGOs working towards combating pandemic-induced challenges such as loss of livelihood for vulnerable communities, food banks, and health and medical support.
- In any such social effort, programme expenses attract the big cheques — especially when they come from corporate social responsibility (CSR) initiatives in India.
- But NGOs have other expenses too. In order to achieve long-term and sustained impact, they need to pay for administrative and support expenses not specifically tied to programmes— for instance, rent, electricity, technology and human resource costs.
- These organisational development and indirect costs, combined with programme expenses, make up an NGOs’ true costs.
- And underfunding an NGO’s true costs reduces the efficacy and impact of the very programmes that funders support.
The funder archetypes
- Based on a recent survey of nearly 80 diverse social sector funders, there are three distinct funder archetypes — programme proponents, adaptive funders, and organisation builders.
- The three archetypes represent different beliefs in terms of how philanthropy becomes impact.
- Programme proponents value programme outcomes above all.
- Adaptive funders are not rigid and support indirect costs and organisational development, if the NGO makes a case.
- Organisation builders see value in investing in stronger organisations in addition to programmes.
- CSR funders, who now represent a fifth of all private giving in India, principally fall under programme proponents.
- They mostly contribute little or no money to organisational development and limit what they pay for indirect costs to a fixed rate often below 5%.
- These practices are partly a consequence of CSR funders’ focus on regulatory compliance — amendments to the CSR law in 2021 include substantial financial penalties for non-compliance.
- Roughly 90% of the CSR funders are relatively small, unlisted companies — and companies that spend less than ₹50 lakh annually on CSR are not required by law to have a CSR committee.
- They generally leave decision-making and action plans to company boards, who may have little to no experience working with NGOs or on social impact.
- Hence, their priorities tend to sway towards risk avoidance, compliance, and cost minimisation.
- Many CSRs make errors on safety with the unintended consequence of leaving an NGO with unpaid bills or worse still, drawing on its scarce core funding from other donors to pay for these essential costs.
How might this change?
- For one thing, companies can pool their resources with other mission-aligned CSR or social sector stakeholders, increasing their collective impact potential, and also hire or tap into professionals with experience working with NGOs.
Learn from peer organisations
- In addition, CSR funders would learn from peers who view organisational development and indirect costs differently.
Cover indirect costs and organizational development
- The pandemic also exposed how vulnerable NGOs are to financial stress.
- A research revealed that 54% of NGOs had less than three months in reserve funds in September 2020.
- The CSR programmes cannot currently contribute to NGO reserves/corpus by law.
- However, by covering indirect costs and organisational development, they still help to relieve financial pressure and make organisations more resilient.
- Corporates have considerable accounting and finance capabilities that they can offer to NGOs, in addition to their funding.
- A corporate could offer volunteer financial analysis services to help the NGO calculate true costs and communicate with other funders, and build financial resilience.
CSR practices are maturing. More CSR decision-makers are shifting their focus from compliance with CSR laws to the social impact they are making. CSR funders are following several themes to make this transition, such as hiring professionals, coming together in collaborative, and defining and publishing their impact metrics to hold themselves accountable. The idea is to move beyond signing cheques to recognising that, ultimately, what’s good for Indian society is also good for business.
Must Read: NGOs and their right to foreign funds
Source: The Hindu