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Why do even the larger nonprofits resemble bonsais when compared to for-profit banyans?
Nonprofit leaders in India are often criticised for their apparent inability to grow their organisations to the scale to which for-profit businesses routinely aspire. Where, they are asked, are the nonprofit unicorns? Why do even the larger nonprofits resemble bonsais when compared to for-profit banyans?
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Whether or not scale is an unalloyed positive is a question that merits debate. Suppose, for the purposes of argument that it is. The size of India’s social challenges certainly seems to demand the greatest possible scale. How then might India’s nonprofits get there?
As a startup in the nonprofit space, there is no obvious place to start one’s search, offline or online, for guidance on forming a new entity. Word of mouth might fortuitously guide you to one of the firms providing specialist advice. Finding a good one is the equivalent of landing on a square with a steep ladder in the nonprofit board game. They will help you to decide whether a society, trust or nonprofit company best suits your particular ambitions.
They will also assist you in navigating the maze of paperwork required to first register your nonprofit and then seek tax exemptions for the entity and for its prospective donors. You must try not to be intimidated by the volume or the complexity of the information you will need to provide. The sector remains entirely untouched by any notion of ease of doing business.
Once you have your entity established, it’s time to discover that many potential sources of funding remain out of bounds for at least three years, the period necessary to qualify for CSR funding or permission to receive international donations under the Foreign Contribution Regulation Act (FCRA). Could developing an income stream from the sale of products or services provide a ladder up?
You’ll quickly realise that route is really a snake since ‘business’ income exceeding 20 percent of total revenues will cause you to lose your tax exemption. You’ll also discover that nonprofits are not particularly desired as clients by banks or those who rent office space, not just because they aren’t particularly flush with funds but because the whole sector has been painted as potentially risky, allegedly prone to scams or political hazard.
Soon you’ll find that most Indian donors do not support either the costs of trained personnel or investments in training, marketing, fundraising and technology or other infrastructure. Some international donors might be inclined to, but the newly amended FCRA prevents them from doing so. Climb to the next level via a small infusion of equity capital or even a loan? Ride that snake back to square one since neither debt nor equity are permitted to Indian nonprofits.
If you do not have the good fortune to count some wealthy folk among your social circle, who will trust your intent and your abilities and open both their chequebooks and their contact lists to your venture—you will find yourself trapped in a Hunger Games scenario where you will battle thousands of other nonprofits struggling for survival for a chance to pitch your proposition to donors inundated with similar requests.
Your chances of survival in this contest are directly proportional to the predictability of your model. Those that promise simple, easy-to-measure, photogenic solutions, preferably located within driving distance of the donor’s location are much more likely to win support than those whose work deviates from the tried and tested or seeks to serve communities and causes that are less popular.
Organisations led by women, minorities and the marginalised, with the best understanding of the needs of their communities, have the lowest access to donors and the least probability of attracting support. On the off chance that you make it through many invisible hoops to find unrestricted, long-term funding or are somehow able to bring in more funds you’re your programmes immediately need, beware of the snake lurking in the form of the tax liability for ‘surplus’ over 15 percent of revenues.
Trapped on this treadmill of limited access to resources, preventing the investments necessary for growth, it is no surprise that most nonprofits must soldier on barely surviving from year to year. Deprived of predictable revenue streams, and the possibility of accumulating reserves, they are unable to plan or invest beyond the typical 12-month horizon preferred by most donors. The fact that very little nonprofit funding is unrestricted exacerbates this situation, with donors’ budgets narrowly allocated to specific line items affording little flexibility to respond to changing contexts or even to new learning.
Should a nonprofit perchance break out of this vicious cycle, it will find itself perversely penalised by donors who claim that they would prefer to direct their support to more ‘needy’ organisations. Should the nonprofit choose to focus its efforts on achieving systemic change through advocating for more effective policies, it will face even greater regulatory hurdles and far fewer donors willing to extend their support.
The COVID-19 pandemic has caused some donors to modify their approaches. Internationally, and to a smaller degree in India, donors have provided more funds on more flexible terms with less onerous conditions. Whether these practices will become more widely prevalent or outlive the pandemic remains to be seen. Further, unlike many other countries that recognised the need to protect their nonprofit sectors so as to ensure their continued ability to meet the unprecedented demand for their services, India has failed to extend either employment support or increased tax incentives for philanthropy.
Instead, India’s nonprofits found themselves competing, on the one hand, with entities like the PM-CARES fund which provided donors every possible incentive and inducement and, on the other, combating new regulatory constraints on tax exemption, CSR and FCRA placing greater hurdles to resource mobilisation from every potential source.
As the data become available revealing the scale of the impact on health, nutrition, education, livelihoods and every other development front, the hobbling of India’s nonprofit sector will seriously handicap both short-term recovery and longer-term resilience. In 2021 and beyond, the prognosis for India will depend on our ability to replace the snakes with ladders.
—The author, Ingrid Srinath is Director at the Centre for Social Impact and Philanthropy at Ashoka University. Views are personal
(Edited by : Ajay Vaishnav)