Role of CSR in funding NGOs

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    In News 

    Recently ,The evolving role of Corporate Social Responsibility (CSR) in funding Non-Governmental Organisations(NGOs) has been highlighted .

    Corporate Social Responsibility (CSR)

    • The CSR concept in India is governed by Section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR Policy) Rules, 2014. 
    • The Companies Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.
    • Companies having a net worth of at least 500 crore rupees or a minimum turnover of Rs 1,000 crore or a net profit of Rs 5 crore or more during the immediately preceding financial year have to spend on CSR activities.

    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. 

    Significance

    • Accelerating activities: The NGOs look into accelerating activities like issues dealing with poverty alleviation, water, environment, women’s rights and literacy. 
    • In the past decades, there has been significant growth in areas where NGOs have been active. 
    • Influencing to formulate laws : They have influenced  the Indian government to formulate various developmental laws and policies, which include:
      • Right to Information, 
      • Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), 
      • Juvenile Justice and 
      • Integrated Child Protection Scheme (ICPS). 
    • NGOs also partnered with the government to successfully implement major campaigns like Swachh Bharat Abhiyan and Sarva Shiksha Abhiyan.
    • Such partnerships give better results and involvement of common people.
    • During the pandemic : NGOs played a pivotal role and supported the government’s COVID-19 response initiative full-fledged. 

    Role of CSR Funding 

    • CSR funders mostly contribute little or no money to organisational development.These practices are partly a consequence of CSR funders’ focus on regulatory compliance — amendments to the CSR law in 2021 include substantial financial penalties for non-compliance. 
    • Not every company is aware of all the facets of the CSR rules they are complying with. 
      • For instance, the 5% cap on administrative overhead costs is applicable only to a business’ internal CSR operation cost, not to the grantee’s administrative costs, as is widely perceived. 
    • Many CSRs make errors on safety with the unintended consequence of leaving an NGO with unpaid bills or worse still, drawing on its scarce core funding from other donors to pay for these essential costs.

    Other Challenges faced by NGOs

    • Underfunding : NGO working on education outcomes might receive funding for books, other online resources, teacher training, curriculum design, etc. But NGOs have other expenses too. 
      • In order to achieve long-term and sustained impact, they need to pay for administrative and support expenses not specifically tied to programmes— for instance, rent, electricity, technology and human resource costs. 
      • These organisational development and indirect costs, combined with programme expenses, make up an NGOs’ true costs. 
        • And underfunding an NGO’s true costs reduces the efficacy and impact of the very programmes that funders support.
    • Lacking skill:
      • Most NGOs lack the technical know-how for efficient working and are also not interested in investing in training etc. 
      • NGOs don’t have clear financial reporting standards and many lack the internal capabilities to undertake a true-cost analysis.
    • Pandemic : The pandemic also exposed how vulnerable NGOs are to financial stress. 
    • NGOs also suffer largely from a lack of volunteers and frequent turnover of staff. 

    Suggestions

    • Companies can pool their resources with other mission-aligned CSR or social sector stakeholders, increasing their collective impact potential, and also hire or tap into professionals with experience working with NGOs. 
    • The CSR programmes cannot currently contribute to NGO reserves/corpus by law. However, by covering indirect costs and organisational development, they still help to relieve financial pressure and make organisations more resilient. 
      • Corporations can offer NGOs additional funds .
    •  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 and communicate with other funders, and build financial resilience. 

    Mains Practise Question

    [Q] Can Non-Governmental Organisations(NGOs ) present an alternative model of public service delivery to benefit the common citizen?analyse the challenges of this alternative model .