W Power 2024

How to create enduring social impact

India's NGOs would benefit enormously from reserves and endowments that could translate to financial resilience, and much more significant impact, Pritha Venkatachalam and Anant Bhagwati of The Bridgespan Group write

Published: Mar 13, 2023 04:30:22 PM IST
Updated: Mar 14, 2023 11:54:51 AM IST

NGOs in India struggle with financial resilience. The Pay What It Takes (PWIT) India initiative has shown us that even tenured, larger-sized NGOs lack operating reserves, let alone an endowment.
Illustration: Chaitanya Dinesh SurpurNGOs in India struggle with financial resilience. The Pay What It Takes (PWIT) India initiative has shown us that even tenured, larger-sized NGOs lack operating reserves, let alone an endowment. Illustration: Chaitanya Dinesh Surpur
 
For Mumbai-based Jai Vakeel Foundation (JVF), 2019 was a pivotal year. Even though the NGO was emerging as a leader in the field of intellectual disability, it was struggling to make ends meet. That was until it built its target corpus—a large sum mobilised from multiple funders to provide many months of operating costs. This key moment allowed the NGO to unlock its potential.

NGOs in India struggle with financial resilience. The Pay What It Takes (PWIT) India initiative has shown us that even tenured, larger-sized NGOs lack operating reserves, let alone an endowment.
Illustration: Chaitanya Dinesh SurpurBack then, JVF served 700 students directly with a staff of about 200 and an annual expense budget of ₹11.25 crore ($1.6 million). It supported an additional 2,000 students per year through two rural medical camps.

When Archana Chandra, who had been with the organisation since 2009, took over in 2013 as CEO, she knew the institute’s financial base had to expand. JVF, established in 1944, had historically been funded through the largesse of the founder’s extended family and their personal networks. At the time, JVF “had two sources of funding: The government and a few individual donors,” says Payal Wadhwa, JVF’s head of fundraising and donor management. “Today, there is government funding, support from trusts and corporates, individual funding, and more.”

It was imperative, Chandra knew, to change how funders viewed JVF. The answer came in the form of a crucial fundraising exercise envisioned as the ‘Champions of Change’ campaign, which would help JVF build a corpus. The campaign involved getting pledged commitments from supporters. The generosity of significant donors was acknowledged and celebrated by works of art created by noted sculptor Arzan Khambatta. JVF then collaborated with other prominent artists, who painted Khambatta’s sculptures in their own unique styles.

The result: Chandra’s goals bore fruit, and JVF’s financial health took a turn for the better. “We were trying to institutionalise Jai Vakeel, which meant we had to build it like an organisation that outlives individuals, which in turn meant having support functions, like HR, PR, and a finance department,” she says. While the fundraising was a success, Chandra emphasises the continuing importance of steering JVF to a more financially resilient future.

Philanthropic Potential to Build Grantee Financial Resilience

With the wealth of India’s ultra-high-net-worth individuals and families growing dramatically, domestic philanthropy needs to keep pace. According to Forbes, the combined wealth of India’s 100 richest has grown more than 50 percent over the past two years (with 61 adding $1 billion or more in 2021 alone), reaching $800 billion in 2022.  

The percentage of giving amongst the wealthiest has not kept pace with growing wealth. The median contribution for that group is just 0.02 percent of wealth. For India to accelerate its momentum for social change—including meeting its Sustainable Development Goals (SDGs) commitments by 2030—domestic philanthropy needs to step up in building a stronger NGO sector.

If just one-fifth of a percent of the wealth of the 100 richest Indians were granted to endowments or reserve funds, this could set over 320 NGOs on a sustainable journey of transformative scale, each with a $5 million backstop. This action could have sustainable impact over multiple decades and across many SDGs, launching a very different trajectory for India’s development sector and making it much more ‘atmanirbhar’.  

Also read: The changing purpose and process of philanthropy: Aparna Piramal Raje

Hard Facts  

NGOs in India struggle with financial resilience. The Pay What It Takes (PWIT) India initiative has shown us that even tenured, larger-sized NGOs lack operating reserves, let alone an endowment. Before Covid-19 hit, 40 percent of the 388 NGOs PWIT India studied revealed that they had less than three months of reserves. By September 2020, 54 percent of surveyed NGOs were financially stressed. The data reveal a clear pattern of chronic underfunding. Without reserves, NGOs cannot pay salaries or bills when faced with unexpected funding shortfalls, such as financial difficulties caused by the pandemic or a natural disaster.  

This remains a big challenge. As seen with JVF, not having an endowment—or even corpus to provide running costs for 12 to 24 months—puts an unfair burden on recurrent fundraising and distracts leadership from its mission-driven task.  

Even more damaging is the false narrative, often cited by philanthropists, that NGOs do not have the ability to absorb transformative endowments (greater than $5 million). Bridgespan research globally shows that not only do such generous unrestricted gifts make sense, but they are also very possible, even with medium-sized NGOs. For instance, an NGO with an annual budget of $1 million can absorb an endowment of $5 million, using the interest earned from it to meet about 50 percent of its operating budget and thus creating significantly more ability to focus on programmes and impact.   

Most Indian NGOs also find it hard to make the case for significant savings, unlike corporates that accumulate reserves and surpluses. Data from PWIT India indicate that half of the survey respondents reported no operating surplus over the prior three years. Since surpluses are essential for building cash reserves, it came as no surprise that few also had cash on hand. “We do not have any corpus funds to help us in case of a shortfall,” said one NGO leader. “Small savings over the last decade can only help us manage one or two months.”  

The Covid-19 pandemic showed us that NGOs with substantial reserves or endowments were better placed to weather the storm. They could adapt to the disruption and continue their work, rather than fight fires to make ends meet.  

JVF and the Muktangan Education Trust are two examples. Both had built corpus reserves, which meant salaries were paid and jobs retained throughout the pandemic. Unfortunately, for 63 percent of NGOs we surveyed, financial stability remains a pipe dream, as some or all of their funders reduced or cancelled planned commitments during the pandemic.

Also read: How family philanthropy can shape a new social contract in India

 

Changing the Mindset  

Today, more than 300 NGOs in India have significant programme budgets ($1 million and more) and are thinking of transformative impact and scale. Above and beyond corpus reserves, an endowment could get them onto a different trajectory for their programmes, confidence, and sustainability. But it will require a significant shift in thinking by philanthropists, as well as focussed action from NGO leaders.  

Indian philanthropists could work with NGOs with whom they have nurtured and developed a rapport to evolve their conversations around funding, including endowments. Funders who approach NGOs from a more trusting position may be able to work out what would make an NGO endowment-ready and bring that goal to life.

NGO leaders might likewise set a timeline to engage with trusted philanthropists on endowments and reserves. Be prepared to ask for what it would take to make you endowment-ready, and work with advisors to think boldly about what could be possible. There may be internal processes and systems that could give more confidence to funders. For example, financial management capabilities and transparent governance and reporting. Most importantly, leaders can learn lessons from other successful NGOs.  

For example, Muktangan was initially funded from its founders’ public charitable trust and their mid-size family company. “When we took over seven schools from the Brihanmumbai Municipal Corporation, we realised it was not possible to fund the entire programme through internal resources, and that’s how we started fundraising,” says Farida Bhathena, Muktangan’s CFO.  

The NGO, founded in 2003, runs schools in Mumbai’s G South Ward. After receiving capacity-building advice from Dasra, the funder and social sector intermediary, Bhathena recalls a shift in the organisation’s long-term goals. One important takeaway: Muktangan decided to shift its approach to funding for the schools and progammes they run.  

“We took on the conscious decision to have unrestricted funding as an important strategy for fundraising,” Bhathena says. While regular operating costs were funded by large corporates and trusts, “for the unrestricted funding, we approached individuals, well-wishers, and a few high-net-worth individuals with a high trust quotient in the effectiveness of the Muktangan programme.” All this helped Muktangan build reserves, a development fund, and endowments for funding specific components of their programme.

The outcome has been heartening. Mukatangan now has cash reserves of 17 months, sufficient to cover the possibility of some support drying up as well as fund future growth. “We request our donors to commit funds for at least three years. This enables us to concentrate on long-term programmes without worrying about occasional hiccups,” Bhathena says.  

For most NGOs, though, the challenge still lies in convincing funders to stay on for the long haul. As India recovers from the wounds of the pandemic, building financial resilience for NGOs becomes all the more time-critical as India resets its efforts to achieve the SDGs.

(This story appears in the 10 March, 2023 issue of Forbes India. To visit our Archives, click here.)