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NGOs raise funds in corporate style

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September 3, 2013
Deepti Chaudhary

Mumbai: When Hand in Hand, a non-governmental organization (NGO), decided to raise capital, it sought a partner that was transparent and also had money. It also wanted a credible name, given that it dealt with sensitive issues such as child labour.

On 26 August, the NGO found one in Social Venture Partners (SVP), the world’s largest network of engaged philanthropic investors. “Their process-oriented approach even in selecting partners reflected a transparent method,” said N. Jeyaseelan, chief executive officer of Hand in Hand.

Being an NGO, Jeyaseelan found it expensive to invest in information technology (IT). “SVP has IT experts and they are developing an IT-based MIS (management information system) for us,” he said.

Hand in Hand has received grant commitments of Rs.52 lakh from SVP, to be given in portions over three years. “With CSR (corporate social responsibility) becoming mandatory, we are hopeful that the partnership will help us get more funds,” Jeyaseelan said.

The new companies law makes it mandatory for profit-making companies to spend at least 2% of their average profits in the last three years on CSR activities. The Bill awaits formal presidential assent.

“Traditional philanthropy is not enough,” said Lance Fors,>SVP president. His social venture fund works on a unique model of offering grants to non-profit organizations in a venture-based investment style, with emphasis on organizational capacity building.

In India, SVP began operations in May last year in Bangalore and has over 60 partner-members. Other than Hand in Hand, it has backed two other non-profit firms—organic farmers’ collective Sahaja Samrudha and Technology Informatics Design Endeavour (TIDE), which promotes sustainable development through technological interventions

For TIDE, finding a financial partner who could take on the challenge of backing an “unusual” project was of utmost importance. The project is de signed to contribute to energy conservation and waste management in urban cities with audits that are designed to lead to “nil investment recommendations” and can result in about 3% energy savings on monthly bills.

“This project is very innovative and a typical donor would have seen it as risky,” said K. Sumathy, executive director at TIDE. She added that the project will be launched as a six-month pilot in September. SVP has offered a grant of Rs.10.4 lakh for the pilot.

Begun in 1997, SVP has over 2,700 active partner-members (donors) across the US, Canada, China and Japan, and works with over 600 organizations. “SVP grew out of a need of people, who want to give back,” said Fors, adding: “Many are saying we have money…maybe not as much as Bill Gates, but we have skill sets that can help organizations.”

The vacuum that Dhawan and his colleagues saw in the market was at the seed stage; working hands-on with social entrepreneurs.

SVP India’s strategy comprises three main themes that each city chapter will drive, including a national-level focus on poverty alleviation that involves job creation for unskilled workers, vocational training and job placement, besides incubation of new social enterprises.

In Bangalore, one needs to give grants of Rs.2 lakh per year for three years to be a partner-member. SVP India can offer grants of as much as Rs.25 lakh per company and the grant may vary depending on the company’s requirements. As it is a grant, no monetary returns are given back and there is no “exit”.

The grant, however, does not come easy. Every potential funding undergoes a due diligence process that includes multiples rounds of talks with the management, a consideration of their financials (can it scale, is it sustainable), site visits and feedback from end users.

“It’s a partnership, not an arm length relationship,” said Fors.

SVP is now expanding into Mumbai and Pune. For its Mumbai chapter, SVP India has commitments from over 75 people, company executives said. In the near future, it intends to spread across India into New Delhi, Chennai, Hyderabad and Kolkata

“We would also like to expand our focus to include social enterprises, including for-profit social impact organizations,” said Arathi Laxman,> chief executive of SVP India.

SVP’s India operations point to a broader trend that is slowly building in the country—that of philanthropy getting institutionalized.

GiveIndia, for instance, is a donation platform that allows donors to support a cause of their choice from about 200 NGOs that have been scrutinized for transparency and credibility. GiveIndia does not raise funds for itself and helps one donate to these NGOs.

The main areas of concern for philanthropists are providing food and clothing, and supporting education, according to Bain and Co.’s India Philanthropy Report 2013, released in May. Private contributions increased in tandem with gross domestic product (GDP) growth and India’s rich increased their contributions from 2.3% of household income in 2010 to 3.1% in 2011, the report said.

Bain surveyed 180 high networth individuals (HNIs) across four major cities as well as leaders at more than 40 NGOs for this report.

“While GDP growth may or may not be the prime determinant, impact—both quantifiable and visible impact—clearly affects the contribution philanthropists make. Hence, impact is especially crucial for NGOs to define, measure and communicate to philanthropists,” said Anant Bhagwati, co-author of the report and a principal in Bain’s consulting office..

According to the report, it is crucial that impact becomes a central part of the conversation between donors and NGOs to spur philanthropic contributions.

Meanwhile, the role of young people—donors under the age of 30—is also growing fast in philanthropy.

In Bain’s 2012 report, more than one-third of those surveyed were under 30 years of age. Within this young and fast-expanding HNI and emerging HNI class, there is a specially strong commitment to “giving back”, said Bhagwati.