The evolving role of CSR in funding NGOs

Source: The post is based on an article “The evolving role of CSR in funding NGOs” published in The Hindu on 8^th September 2022.

Syllabus: GS 2 – Development processes and the development industry

News: Pandemic acted as a shock for everyone. NGOs also faced problems, but Corporate Social Responsibility (CSR) helped. But NGOS still face problems in covering their organizational development and indirect cost.

What are the problems faced by NGOs?

NGOs have many expenses (rent, bills, etc.) and these expenses are not often fulfilled by funding.

The underfunding of the NGO impacts programs and initiatives taken by NGOs.

Organizational development cost and indirect costs combined with program expenses make up NGOs’ true costs.

NGOs’ indirect costs range from 5% to 55%, depending on their operating model.

CSR funders contribute very little to organizational development cost of the NGOs.

They pay for the indirect cost of the NGOs, which is often below 5%. This causes NGOs to face financial stress in paying rents, salaries, etc.

Many CSRs leave NGOs with unpaid bills and NGOs are made to look for funding from other sources.

Research says that in 2020, 54% of NGOs had less than three months in reserve funds.

How can the situation of NGOs be changed?

CSR programs can help in covering both indirect costs and organizational development.

Corporates can help NGOs by providing other assistance such as accounting facilities in addition to their fundings.

They can further help NGOs by offering volunteer financial analysis services to calculate NGOs true cost.

What are the problems associated with CSR funders?

Regulatory compliances

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 Responsibilities

90% of the CSR are small and unlisted companies and they generally leave decisions on CSR funding to board members instead of forming CSR committees.

They focus more towards risk avoidance, compliance, and cost minimization.

Some companies have given this responsibility to their HR or administration heads rather than hiring professionals.

What can be the course of action for NGOs?

First, Companies can pool their resources with other CSR or social stake holders.

Second, they can also hire top professionals who have experience of working with NGOs.

Third, CSR funders can learn from other CSR funders who view organizational development and indirect cost differently.

For example, the CSR branch of ASK Group which works to enable better livelihoods for rural communities shifted from 10% to 20% funding to NGOs.

This was done after the CSR team presented the standard which is being followed by other companies.