What is meant by CSR?
The full form of CSR is 'Corporate Social Responsibility' which means a profitable business or organization has responsibility to the worse-off sections of society. It could be donating to them, helping build their skills so that they can get jobs, setting up schools, infrastructure in villages where little exists or anything to improve the quality of life of those living in those areas.
It's compulsory for companies in India that qualify by certain measures to commit 2% of their profit to this cause.
About Non-Governmental Organisations(NGOs)
They were first called such in Article 71 in the Charter of the newly formed United Nations in 1945.
They are nonprofit entities independent of governmental influence who work for, environmental, social, advocacy, and human rights work.
They play a critical part in developing society, improving communities, and promoting citizen participation.
The evolving role of CSR in funding NGOs
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.
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.
Impact of funding NGO through CSR:
a) 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.
b) 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.
c) 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.
d) 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:
1.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.
2. 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.
3. 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.
The idea is to shift away from merely signing cheques towards recognizing that what is good for the society is also good for the business. The CSR scene is already transforming as seen from the increasing number of philanthropic collaboratives.
Written by Pinky Bothra