COVID-19 spurred a nationwide lockdown in India in 2020. Hence, a grave need for localised social support emerged. Both private and public funds flowed to NGOs working towards combating pandemic-induced challenges like loss of livelihood for vulnerable communities, food banks, and health and medical support.

Issues faced by NGOs pertaining to Funding

• In any such social effort, programme is funded in huge amount through corporate social responsibility (CSR) initiatives in India.
• For example: An NGO working on education outcomes might receive funding for books, other online resources, teacher training, curriculum design, etc.
• NGOs have other expenses too such as rent, electricity, technology and human resource costs. 
• Underfunding an NGO’s costs reduces the efficacy and impact of the very programmes that funders support.
• NGOs don’t have clear financial reporting standards and many lack the internal capabilities to undertake a true-cost analysis.

Impact of Pandemic:

• The pandemic exposed how vulnerable NGOs are to financial stress.
• According to research, 54% of NGOs had less than three months in reserve funds in September 2020.
• This number stood at 38% before the pandemic.
• Without adequate reserves, NGOs cannot pay salaries or bills when faced with an unexpected funding shortfall.

Types of Funders:

• According to a recent survey of nearly 80 diverse social sector funders, there are three distinct funder archetypes:
• Programme proponents: They value programme outcomes above all.
• Adaptive funders: They support indirect costs and organisational development.
• Organisation builders: See value in investing in stronger organisations in addition to programmes.

Impact of funding NGO through CSR:

Organisational development

• CSR funders account for 1/5th of all private funds in India, mainly fund the NGO for its program running (instead of other administrative costs).
• 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%.
• NGOs’ indirect costs range from 5% to 55%, depending on their mission and operating model.

Regulatory compliance

• CSR funders mostly focus on regulatory compliances because of the amendment in CSR law 2021.
• The amendment includes penalties for non-compliance of the law.

Shifting of resources

• Roughly 90% of the CSR funders are relatively small, unlisted companies.
• 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.
• Several larger companies have added CSR to the responsibilities of their HR or administration or communications head, rather than hiring professional leads, experienced in the social sector.

Lack of awareness

• Further, not every company is aware of all the facets of the CSR rules they are complying with.
• Many CSRs make errors on safety with the unintended consequence of leaving an NGO with unpaid bills.

Suggestions to Improve the current Situation:

• Companies can pool their resources with other mission-aligned CSR or social sector stakeholders, increasing their collective impact potential, and tap into professionals with experience working with NGOs.
• CSR funders could learn from peers who view organisational development and indirect costs differently.
• For instance: ASK Foundation, the CSR arm of ASK Group, is working to enable better livelihoods for rural communities.
• In addition to funding support, corporates can aid the NGOs by offering their substantial accounting and finance capabilities.
• NGOs don’t have clear financial reporting standards and many lack the internal capabilities to undertake a true-cost analysis.
• A corporate that has developed a relationship of mutual trust with an NGO could offer volunteer financial analysis services to help the NGO calculate true costs.
• It should communicate with other funders, and build financial resilience.

CSR practices are maturing and more CSR decision-makers are shifting their focus from compliance with CSR laws to the social impact they are making. It is need of the hour to move beyond signing cheques to recognising that, ultimately, what’s good for Indian society is also good for business.