Building Strong, Resilient NGOs in India: Time for New Funding

Collaborating to accelerate social impact March 2021

Building Strong, Resilient

NGOs in India: Time for

NewFunding Practices

By Pritha Venkatachalam, Donald Yeh, Shashank Rastogi, Anushka Siddiqui,

Umang Manchanda, Kanika Gupta, and Roger Thompson

2

Table of Contents

Messages from the Anchor Partners �� 3

Executive Summary

�� 5

Introduction

�� 8

What the Data Show

��10

Reframing the Funding Conversation

�� 12

NGOs Need Funding for Organizational Strength

�� 14

NGOs Struggle to Build Cash Reserves Needed

for Financial Resilience

�� 16

Program Grants Routinely Shortchange Essential

Indirect Costs

�� 18

Systemic Underfunding Hurts DBA-led and RuralNGOs

More than Others

�� 20

Four Steps to Building Strong and Resilient NGOs

�� 22

1� Develop multiyear funder-NGO partnerships ��22

2� Close the indirect-cost funding gap ��23

3� Invest in organizational development �� 23

4� Build ﬁnancial reserves ��24

Pursuing an End to Systemic NGO Underfunding

��25

Sidebar: The Impact of Regulatory Changes

��27

Acknowledgments

��29

Anchor Partners in the Pay-What-It-Takes IndiaInitiative

��30

Appendices

��33

Appendix A: Research Methodology ��33

Appendix A: The Impact of Investment in Organizational Development ��35

Appendix A: Proﬁle of NGOs in Our Analysis�� 36

Appendix D: Entities that Supported Our Research ��37

Cover photo: Daily village meeting facilitated by Adhikar Sakhies of Ibtada in Alwar� Credit: EdelGive Foundation

3

Messages from the Anchor Partners

This report is the product of a newly launched, multiyear Pay-What-It-Takes (PWIT) India

Initiative committed to building stronger, more ﬁnancially resilient NGOs� The initiative

is led by The Bridgespan Group and the ﬁve anchor partners: A�T�E� Chandra Foundation

(ATECF), Children’s Investment Fund Foundation (CIFF), EdelGive Foundation, the Ford

Foundation, and the Omidyar Network India� Each partner believes strongly in the importance

of better understanding true costs and approached the initiative from a dierent perspective�

“

Funders must build strong and meaningful partnerships with their NGOs to understand

and support the true cost of delivering impact� This research will help peel back the

layers underneath the illusion that there is sucient unrestricted funding for NGOs

enabling them to build for sustainability� With the PWIT initiative, each donor should take

a step forward in strengthening organizations’ core capacities so that they can solve big

problems in thecountry�”

A.T.E. Chandra Foundation

“

As a private philanthropy focused on systemic change, we are committed to building a

thriving ecosystem of partners in line with our strategic and geographical priorities across

sub-Saharan Africa, India, China, Europe, and Latin America� Following the development of

our organizational development strategy in 2019, CIFF aims to strengthen the institutional

capacity of our grantee partners to implement programs, increase their resilience and

long-term impact� Understanding the true cost of grantee support functions and creating

sustainable funding models is key to this agenda� The Pay-What-It-Takes initiative provides

a unique opportunity to help generate the evidence required across a wide range of NGOs

and sectors to build a movement that encourages funders to pay their fair share�”

Children’s Investment Fund Foundation

“

As funders, it is our responsibility to enable the creation of self-sucient growth for the

organizations that we support� In the current context particularly, this need is even more

signiﬁcant as operational hindrances have appeared to be one of the main challenges that

organizations have faced in the pandemic� Through the Pay-What-It-Takes (PWIT) initiative,

we are making a collective attempt to ﬁnd solutions to these challenges and create sustainable

growth for grassroots organizations� The only way to do this eciently, is to directly hear

from them, understand their priorities, and enable ﬂexibility to be able to fund their immediate

needs� We are certain through PWIT we will be able to start a needed initiative to look

beyond ﬁnancial support to programs, toward building resilience for organizations�”

EdelGive Foundation

4

“

Financial resilience is at the core of strong, sustainable organizations� The COVID-19

pandemic has exposed this fragility in Indian civil society organizations (CSOs)� Ford

Foundation continues to remain committed to strengthening CSOs for improved sustainability

and deeper impact� Working together with several donors, we are delighted to partner

with the Pay-What-It-Takes initiative in our common goal to understand the sources of

ﬁnancial fragility among Indian CSOs� Through this eort, we hope to create an enabling

ecosystem that values and nurtures institutional strengthening of CSOs�”

Ford Foundation

“

Nonproﬁts in India often play a critical role in providing missing sectoral infrastructure,

as well as grassroots support and innovation� Our approach to supporting nonproﬁtsat

Omidyar Network India ranges from providing speciﬁc program-related and project-focused

grants to supporting our partner organizations with ﬂexible, unrestricted grants� The latter,

referred to as “core grants,” are a way for our grantees to build organizational capability

in addition to achieving speciﬁc project outcomes� We believe that it is important for

other funders as well to follow similar practices in order to help nonproﬁts achieve their

full potential� We are therefore excited to partner with The Bridgespan Group and other

funders to understand the current state of practice and the steps that can be taken to

improve current practices in the sector�”

Omidyar Network India

5

Executive Summary

Chronic underfunding of India’s nongovernmental organizations (NGOs) acts as a brake

on their ability to grow programs to reach more communities and individuals in need�

New research from The Bridgespan Group describes the magnitude of what one NGO

leader called “systemic deprivation�” The research concludes that Indian funders broadly

share practices that inadequately fund NGOs’ true costs, rendering the sector perpetually

subscale�

For the most part, funders prefer to write checks for program support, leaving critical

nonprogram-related expenses underfunded� Those include indirect costs associated with

shared administrative or support functions, capacity building expenses associated with

organizational growth, and reserves needed to sustain the organization in times of revenue

shortfall or unforeseen shocks� Several stakeholders described the typical funder mindset

as anything that goes outside of program costs does not contribute to impact�

Advocates for change have been hindered by what one Indian funder called “a serious

shortage of evidence�” To address this shortage, Bridgespan conducted a survey of 388NGOs

representative of the sector, and a ﬁnancial analysis of 40 leading and relatively well-funded

NGOs� Our research revealed a clear pattern of chronic underfunding leading to severe

ﬁnancial stress�

• The ﬁnancial analysis conﬁrmed what we have found in similar US studies: no single

indirect-cost rate ﬁts all NGOs�

1

Indirect costs ranged from 5 percent to 51 percent of

total NGO costs�

Actual indirect costs as a percentage of total costs

Bridgespan analyzed expenditures of 40 NGOs in India. Their actual indirect

costs ranged from 5 percent to 51 percent.

Slide 2: Actual indirect costs as a percentage of direct costs

Bridgespan analyzed expenditures of 40 NGOs in India. Their actual indirect costs ranged from

5 percent to 51 percent.

42%

7%

51%

19%

Average

Individual NGOs

0%

20%

40%

60%

Advocacy/research

Direct service

5%

29

11

Indirect costs as a

percentage of total costs

Source: Financial analysis of 40 NGOs in India�

1 KPMG in India provided support for this analysis for the limited purpose of assisting The Bridgespan Group

in analyzing data provided by the 40 NGOs to derive insights pertaining to their funding� The analysis should

not be construed as an audit or validation of cost structures of any of the NGOs covered in this project�

6

• Eighty-three percent of survey respondents reported struggling to secure coverage of

indirect costs�

• More than half of the survey respondents reported having fewer than three months

ofreserves�

• Half of survey respondents reported no operating surplus for the past three years�

• While our research shows that NGOs investing in organizational development are

able to scale impact faster, only 18 percent of the survey respondents said they invest

adequately in organizational development�

• Certain NGOs face greater challenges than most� For instance, 70 percent of NGOs led

by members of the Dalit, Bahujan, or Adivasi (DBA) communities have not reported any

operating surplus in the past three years, compared to 45 percent for non-DBA-led NGOs�

• Sixty-one percent non-metro and rural NGOs reported fewer than three months of

ﬁnancial reserves, compared to 51 percent of NGOs based in eight major cities�

Changing the practices that lead

to these results requires a dierent

approach to grantmaking� In

search of a solution that supports

both strong programs and

strong organizations, Bridgespan

developed with the Ford Foundation

a simple Grantmaking Pyramid that

reframes how funders and their

grantees can think about building

successful, resilient organizations�

Like the pyramids of old, this one

rests on a sturdy foundation that

builds upward toward an impact

goal� First, NGOs need to build

strong foundational capabilities,

such as strategic planning and

leadership development� Second,

NGOs need ﬁnancial resilience

that comes from accumulating

unrestricted reserves� Third, NGOs

need to scale the reach, eectiveness, and impact of their programs�

The Grantmaking Pyramid has the potential to broaden conversations between funders

and NGOs about true costs and adequate funding� Based on our India and global

experiences, and drawing on our interviews with sector leaders, we have distilled four

recommendations that draw on the Grantmaking Pyramid and hold promise to set funders

and NGOs on a new path�

• Develop multiyear funder-NGO partnerships: A commitment to longer-term partnerships

based on aligned objectives builds greater mutual trust between NGOs and funders� As

a result, both can focus on all the elements required to deliver higher impact�

The Grantmaking Pyramid

Slide 4: Most NGOs face restrictive

indirect cost allocation

Grantmaking Pyramid

65%

of indirect cost

allocation in their

program grants

Source: The Bridgespan Group ﬁnancial analysis of 40 NGOs

Foundational

Capabilities

Financial

Resilience

Increasing

Impact

r

e

c

e

i

v

e

d

f

u

n

d

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n

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c

t

c

o

s

t

s

<

10%

Source: The Bridgespan Group

7

• Close the indirect-cost funding gap: NGOs can facilitate adequate funding by clearly

communicating and engaging funders in conversations about their indirect-cost needs�

Funders can respond by not relying on low, ﬁxed indirect-cost rates�

• Invest in organizational development: For NGOs to grow, they must invest in

organizational development, such as strategic planning, leadership development, and

technology infrastructure� Funders can communicate to grantees that they understand

the importance of building strong organizations and are willing to provide needed

ﬁnancial and non-ﬁnancial support�

• Build ﬁnancial reserves: When feasible, funders can encourage grantees to accumulate

operating surpluses that can be used to build reserves� And NGOs need to help funders

understand the importance of generating surplus and raising reserve funds (e�g�, from

high-net-worth individuals) to build ﬁnancial resilience�

With so much to do, and so much at stake, it is understandable for a funder to feel

overwhelmed and uncertain about where to start� We suggest three immediate actions�

Right away, reach out to grantees and understand their true funding needs� Simultaneously,

reﬂect on your own policies and how they contribute to chronic underfunding� And resolve

to reﬁne those policies as needed to advance change, drawing on the experience of peers

that have already committed to investments in nonprogram costs and organizational

development of NGOs�

Chronic underfunding undermines the very impact funders and NGOs strive for� This is

a complex, systemic issue, and all stakeholders need to work together to solve it� The

evidence in hand argues that it is time for funders to act—to partner with NGOs and

provide them the resources they need to build the organizational strength and ﬁnancial

resilience to help solve some of society’s most pressing problems� The status quo serves

no one well�

8

Introduction

Quality Education Support Trust (better known as QUEST) has

been on a 13-year journey from grassroots start-up to successful

purveyor of educational enrichment experiences to more than

260,000 underserved children�

Along the way, its leaders gained an

unexpected education of their own on

how to build a strong, resilient non-

governmental organization (NGO)�

From the start, QUEST’s founders excelled at

developing programs to strengthen public education

through professional development of teachers and

educators� But they struggled when the time came to

develop and fund organizational infrastructure and

ﬁnancial health�

“We took a long time to even realize that organizational

development costs exist,” recalled Nilesh Nimkar, a

QUEST director and trustee� As a start-up, QUEST’s

motivated sta put in long hours and took on multiple

tasks to launch successful programs� The need for

capacity building, such as in human resources, ﬁnance,

technology, and measurement, only became clear

as QUEST began to expand� But funders focused

on program support showed little interest in fully

funding nonprogram expenses, such as indirect costs

associated with administrative or support functions,

capacity building investments in the organization’s

growth, orﬁnancial reserves to weather a funding

shortfall� (See “Deﬁnitions” sidebar�) “As you start

growing, your organizational costs become a big

barrier to scaling impact,” said Nimkar�

Funders typically oered QUEST between 5percent

and 10 percent of grant funding to cover nonprogram

expenditures, even though QUEST conservatively

estimated it needed at least 18percent� “That’s the

cost that we actually incurred, but we never got it

from any funder� And when we tried to negotiate for

it, they recognized the need but said no because they

were bound by internal policies,” said Nimkar� Building

a reserve fund posed even greater diculty� NGOs

Deﬁnitions

• Direct Costs: Expenses directly

attributable to a speciﬁc project, and also

referred to as program costs or program-

related expenses�

• Indirect costs: Shared administrative

or support function expenses not tied

to a speciﬁc program (e�g�, salaries

of nonprogram employees, rent and

electricity for central oce, and central

technology costs)� Indirect costs and

nonprogram costs have been used

interchangeably for the purpose of

thisreport�

• Indirect-cost rate: Indirect costs divided

by total costs, expressed as a percentage�

• Organizational development: Investment

in critical institutional growth areas

such as strategic planning, leadership

and talent development, fund-raising,

monitoring and evaluation, technology,

and ﬁnancial resilience, among others�

Organizational development can overlap

with indirect or nonprogram costs�

For instance, an initial organizational

development investment in technology

could become a recurring nonprogram

expenditure in subsequent years�

• True costs: Include indirect costs,

organizational development costs,

and reserve funding, along with direct

program costs�

• Financial resilience: The long-term

ﬁnancial stability of NGOs, cultivated

through prudent and long-term

ﬁnancial planning, diversiﬁcation of

funder base, proactive monitoring of

ﬁnancial performance, and creation

ofreservefunds�

9

(which we are using synonymously with “nonproﬁt organizations,” as they are known in

some countries) ﬁnd it almost impossible due to restrictions on foundation giving and

pervasive misunderstanding about funding rules among corporate social responsibility

(CSR) donors, he added�

2

Without reserves, however, NGOs cannot withstand unexpected

shortfalls in funding—as many experienced when COVID-19 began to spread in 2020�

Fortunately for QUEST, key funders stepped

up before it became a problem to support

its organizational development needs as it

deployed programs for tribal and rural schools,

teachers, and other educators across 24districts

in Maharashtra� But QUEST’s frustrating

experience in securing nonprogram funding

will sound familiar to most NGOs across India�

“There is almost systematic deprivation of NGOs in terms of funding management costs,”

said Anant Bhagwati, director of capacity building at Dasra� Several stakeholders described

the typical funder mindset as anything that goes outside of program costs does not

contribute to impact�

That mindset is due for a refresh� Without sucient nonprogram funding, it is no wonder

that NGOs are “perpetually subscale,” as one NGO leader observed� Changing funding

practices that have left so many NGOs unable to grow their impact will take time� We hope

the survey and ﬁnancial analysis data presented in this report provide the basis for funders

and NGOs to take a fresh look at how to build not just strong programs, but resilient

organizations that can deliver those programs most eectively�

2 The Indian Finance Act of 2017 introduced an amendment that restricts corpus (i�e�, reserve fund) donations

by one charitable organization to another�

“

As you start growing, your

organizational costs become

abig barrier to scaling impact�”

NILESH NIMKAR, DIRECTOR AND TRUSTEE, QUEST

10

What the Data Show

Chronic underfunding of nonprogram costs is a recognized problem that has attracted

increasing attention in India and other countries� The issue centers on inadequate funding

of indirect costs that pay for administrative expenses not directly tied to a speciﬁc program�

It also includes lack of investment in organizational development and insucient reserves�

Domestic and international funders, social sector intermediaries and inﬂuencers, and

NGOs have tried to solve dierent elements of this complex problem� Their work includes

taking steps to develop standardized accounting practices and ﬁnancial reporting norms

for NGOs; providing toolkits and other guidance to funders and NGOs to stimulate honest

and constructive conversations about all nonprogram costs; and supporting multiyear,

unrestricted grants that can be used for organizational development and ﬁnancial resilience�

However, advocates for change have been hindered by what one Indian funder called “a

serious shortage of evidence�” To address this shortage, The Bridgespan Group conducted

a broad-based survey of 388 NGOs representative of the sector,

3

and a separate ﬁnancial

analysis of 40 leading and relatively well-funded NGOs�

4

Our survey and ﬁnancial analysis

mark the ﬁrst stage of a newly launched, multiyear Pay-What-It-Takes (PWIT) India Initiative

led by Bridgespan and ﬁve anchor partners: A�T�E� Chandra Foundation (ATECF), Children’s

Investment Fund Foundation (CIFF), EdelGive Foundation, the Ford Foundation, and the

Omidyar Network India� The partners have committed to collaborative action to literally

pay what it takes to build stronger, more ﬁnancially resilient NGOs� Our research revealed

a clear pattern of the “systemic deprivation” that Bhagwati identiﬁed� For example:

• The ﬁnancial analysis conﬁrmed what we have found in similar US studies: no single

indirect-cost rate ﬁts all NGOs� Indirect costs ranged from 5 percent to 51 percent of

total NGO costs� Yet 68 percent of grants that the 40 NGOs received over a three-year

period allocated less than 10 percent for indirect costs�

• Eighty-three percent of survey respondents reported struggling to secure coverage of

indirect costs�

• Only 18 percent of 388 survey respondents said they invest adequately in organizational

development�

• Fifty-four percent of survey respondents reported fewer than three months of reserves�

• Certain NGOs face greater challenges than most� For instance, 70 percent of NGOs led

by members of the Dalit, Bahujan, or Adivasi (DBA) communities have not reported any

operating surplus in the past three years, compared to 45 percent for non-DBA-led NGOs�

5

3 These NGOs spanned multiple sectors, including agriculture and rural development, education and child

development, health and nutrition, human rights, and civil rights� Eighty-three percent of the surveyed NGOs

had annual budgets of less than INR 10 crore�

4 KPMG in India provided support for this analysis for the limited purpose of assisting The Bridgespan Group

in analyzing data provided by the 40 NGOs to derive insights pertaining to their funding� The analysis should

not be construed as an audit or validation of cost structures of any of the NGOs covered in this project�

5 The Dalit, Bahujan, and Adivasi (DBA) communities in India have historically faced systemic socioeconomic

discrimination� This classiﬁcation strongly intersects with the formally recognized categories of Scheduled

Castes (SC), Other Backward Castes (OBC), and Scheduled Tribes (ST)�

11

• Sixty-one percent non-metro and rural NGOs reported fewer than three months of

ﬁnancial reserves, compared to 51 percent of NGOs based in eight major cities�

To be sure, government regulations also come into play� Corporates are required to make

CSR donations, but CSR funders typically set low indirect-cost rates and neglect funding

for organizational development and reserves� Some funders (e�g�, charitable trusts) are

barred from granting money for NGOs to build reserves, but others (e�g�, high-net-worth

individuals) are permitted to do so�

6

And the Foreign Contribution Regulation Act (FCRA)

amendments in September 2020 cut by more than half (from 50percent to 20 percent)

the amount that foreign donors can give to cover an NGO’s nonprogram costs�

7

A small number of funders, including the ﬁve anchor partners of this initiative, already

have committed to supporting the organizational development needs of their grantees

and cultivating the mutual trust needed to underpin such funding� In addition, some NGO

leaders we interviewed described how they have succeeded in covering nonprogram costs

by clearly explaining to their funders how indirect costs, organizational development, and

reserves are essential to their impact� Together, they are beginning to reframe conversations

in the social sector about funding true costs�

6 Centre for Advancement of Philanthropy, “Finance Act 2017�”

7 Puja Saha and Rahul Rishi, “FCRA Provisions Further Tightened, Non-proﬁts to Face Increased Government

Scrutiny,” Nishith Desai Associates, September 25, 2020�

12

Reframing the Funding Conversation

A fresh look at funding practices starts with getting the complete picture of NGO

expenditures� Prior Bridgespan research involving leading US NGOs oers lessons for

their Indian counterparts�

8

Our work identiﬁed project grants, which represent over three-

quarters of US foundation giving and nearly all government funding globally, as the source

of chronic underfunding�

9

While project grants are an essential tool in philanthropy, they

routinely discount the core administrative and operational costs of delivering programs

and services� Thus project grants cover the direct costs of delivering a speciﬁc program,

but they restrict indirect costs that pay for administrative expenses not directly tied to

aspeciﬁc program�

As a result, NGOs, whether in

the United States or India, that

succeed in landing more and

bigger program grants often lack

funding to build the organizational

capabilities and ﬁnancial resilience

needed to maximize and sustain

their impact� No one wins, least of

all the communities that funders

and NGOs intend to serve� In

search of a solution that supports

both strong programs and

strong organizations, Bridgespan

partnered with the Ford

Foundation in 2017 to develop a

simple Grantmaking Pyramid that

reframes how funders and their

grantees can think about building

eective, resilient organizations�

(See Figure 1�)

First, NGOs need to build strong foundational capabilities� This requires securing adequate

funds to cover the actual costs of core functions, such as strategic planning, leadership

development, information technology, sta training, and fundraising� In addition, each

NGO has certain dierentiating capabilities essential to fulﬁlling its mission� An advocacy

organization, for example, requires excellence in strategic communications, and a medical

research lab requires specialized facilities�

8 Jeri Eckhart-Queenan, Michael Etzel, and Julia Silverman, “Five Foundations Address the ‘Starvation Cycle’,”

The Chronicle of Philanthropy, August 29, 2019�

9 Niki Jagpal and Kevin Laskowski, “The State of General Operating Support 2011,” National Committee on

Responsive Philanthropy, May 2013�

Figure 1. The Grantmaking Pyramid

Slide 4: Most NGOs face restrictive

indirect cost allocation

Grantmaking Pyramid

65%

of indirect cost

allocation in their

program grants

Source: The Bridgespan Group ﬁnancial analysis of 40 NGOs

Foundational

Capabilities

Financial

Resilience

Increasing

Impact

r

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Source: The Bridgespan Group

13

Second, NGOs need ﬁnancial resilience� That means accumulating unrestricted reserves/

operating surplus in the bank and having a diversiﬁed funder base� Without sucient

reserves, NGOs cannot sustain operations when funding falls short, as when a grant arrives

later than expected (or not at all)� Similarly, if an NGO relies on only one or two large funders,

any signiﬁcant cut in funding could jeopardize the NGO’s ability to function�

Third, NGOs need to scale the reach, eectiveness, and impact of their programs�

Programs are the public face of NGOs and the place where, understandably, funders

and grantees focus most of their attention� Successful programs propel the growth that

increases an NGO’s impact� But without adequate foundational support for organizational

development and ﬁnancial health, programs falter and impact suers� In short, chronically

underfunded NGOs chronically underperform when it comes to solving some of society’s

most pressing problems�

The Grantmaking Pyramid has the potential to broaden conversations between funders

and NGOs about true costs and adequate funding� Our NGO survey and ﬁnancial analysis

in India show a need for those conversations based on major gaps between actual need

and widespread funding practices�

14

NGOs Need Funding for Organizational Strength

Our survey showed that NGOs rarely have enough money to invest in critical institutional

capabilities, the base of the Grantmaking Pyramid� Only 18 percent of the 388 surveyed

NGOs said they “invest suciently” in organizational development�

The impact of this shortfall plays out in a variety of

ways� “We are starved for critical investments in key

infrastructure, such as technology systems, leadership

development, and facilities upkeep, among other things,”

said a survey respondent� “We don’t have positions for

support functions, such as fundraising, due to lack of

resources,” said another� Seven out of 10 respondents

reported lack of funds to ﬁll key leadership positions or

make investments in essential capabilities� Eight out of

10missed fundraising opportunities because they could

not hire a development sta� (See Figure 2�)

Figure 2. Among 388 NGOs surveyed, most lacked sucient funds

for organizational development

Source: The Bridgespan Group survey of 388 NGOs in India, September 2020�

Slide 6: Among 388 NGOs surveyed, most lacked sucient

funds for organizational development

Disagree 29%

Agree 71%

Disagree 28%

Agree 72%

Disagree 20%

Agree 80%

Unable to hire for a

key leadership

position due to

funding constraints

Unable to make a

key organizational

development

investment required

to deliver better

outcomes/impact

Lack of

ﬂexible/unrestricted

funding has limited

our ability to

innovate and

improve programs

Source: Bridgespan Group survey of 388 NGOs in India.

“

We are starved for

critical investments in

key infrastructure, such

as technology systems,

leadership development,

and facilities upkeep,

among other things�”

NGO SURVEY RESPONDENT

15

On the other hand, NGOs that reported “sucient” spending on organizational development

grew faster than those that came up short� When we compiled ﬁnancial data on 20 survey

participants, we found that NGOs intentionally investing in organizational development

grew annual expenditures on average 15 percentage points more each year over a ﬁve-year

period than NGOs that were not making those investments� The sample size is small, so the

results are directional rather than deﬁnitive� But they certainly suggest that organizational

development is important for an NGO to grow in size and impact�

To further explore the impact of organizational development spending, we analyzed data from

the 40 NGOs that participated in our ﬁnancial analysis� Most had invested in organizational

development� But some were more focused; they explicitly linked capacity-building

needs to their strategies and presented those needs to funders as essential for success�

Our analysis showed that NGOs intentionally connecting organizational development to

strategy outperformed those with a more informal or opportunistic approach, growing eight

percentage points faster each year over ﬁve years� (See AppendixB for our methodology�)

That can happen only when funders invest in organizational development�

16

NGOs Struggle to Build Cash Reserves Needed for

Financial Resilience

Our survey found that almost four out of 10 NGOs operate in a state of ﬁnancial stress

because they have little or no cash reserves on hand� Without reserves, they cannot pay

salaries or bills when faced with an unexpected funding shortfall� Building cash reserves

isessential to an NGO’s ﬁnancial resilience, the second tier of the Grantmaking Pyramid�

Our survey asked respondents for their experience with two key metrics of ﬁnancial resilience:

surplus or deﬁcit reported on the income statement during the past three years, and months

of operating reserves (liquid unrestricted net assets) to cover ongoing expenses� We consider

NGOs with fewer than three months of operating reserves to be ﬁnancially stressed�

Half of the 388 survey respondents reported no operating surplus for the past three

years� Since surpluses are essential for building cash reserves, it came as no surprise that

38percent of respondents fell into the stressed category with fewer than three months of

cash on hand� “We do not have any corpus funds to help us in case of a shortfall,” said one

NGO leader, referring to operating reserve funds� “Small savings over the last decade can

only help us manage one or two months�” The COVID-19 pandemic that began sweeping

around the globe the ﬁrst quarter of 2020 only made matters worse� By September 2020,

when we conducted the survey, 54 percent of NGOs landed in the ﬁnancially stressed

category� (See Figure 3�) Sixty-three percent of NGOs said some or all of their funders

hadreduced or cancelled planned commitments during the pandemic�

Figure 3. COVID-19 pandemic has drained NGO reserves

Note: Due to rounding, percentages may not always add up to 100%�

Source: The Bridgespan Group survey of 388 NGOs in India, September 2020�

0% 20% 40% 60% 80% 100%

September

2020

reserve

levels

Pre-COVID

reserve

levels

Slide 7: Covid-19 pandemic has drained NGO reserves

Less than 3 3-6 7-9 10-12 More than 12

38% 32% 11% 11% 8%

54% 24% 8%

6%

7%

Months of operating reserves

Source: Bridgespan Group survey of 388 NGOs in India

17

The survey data also showed that small (less than INR 1 crore or USD 135,000 in annual

expenditure) and medium-sized (INR 1–10 crore in annual expenditure) NGOs suer the

most ﬁnancial stress; more than half had fewer than three months of reserves in September

2020� However, even the 66 large NGOs (over INR 10 crore or USD 1�4 million in annual

expenditure) in our survey struggled ﬁnancially�

10

(See Figure 4�) One in three of these

large NGOs had fewer than three months of reserves in September 2020�

Figure 4. Most small NGOs are ﬁnancially stressed, but over one-third

of even the largest NGOs are stressed

Notes: Months of operating reserves is estimated as number of months that expenses can be covered using

unrestricted reserves and other liquid assets� Small NGOs have less than INR 1 crore annual expenditure;

medium NGOs have INR 1-10 crore annual expenditure; large NGOs have more than INR 10 crore annual

expenditure� Reserve levels are as of September 2020� Due to rounding, percentages may not always add

up to 100%�

Source: The Bridgespan Group survey of 388 NGOs, September 2020�

LargeMediumSmall

Slide 8: Small NGOs are most ﬁnancially stressed, but even the

largest aren’t immune

65%

50%

25%

10%

11%

8%

36%

35%

14%

19%

7%

4%

Less than 3 3-6 7-9 10-12 More than 12

Percentage of NGOs by months of reserves six months into the pandemic

Percentage of total respondents

Note: Months of operating reserves estimated as number of months that expenses can be covered using

unrestricted reserves and other liquid assets. Small NGOs have less than INR 1 Cr annual expenditure; Medium

NGOs have INR 1–10 Cr annual expenditure; Large NGOs have INR 10–50 Cr annual expenditure; and Very Large

NGOs have more than INR 50 Cr annual expenditure. *Current reserve levels

N = 181 N = 141 N = 66

10 Only a small number of NGOs in India have a budget above INR 10 crore� A 2018 Bridgespan survey 949 NGOs

in Guidestar India’s database found that 85 percent had annual expenditures less than INR 5 crore�

18

Program Grants Routinely Shortchange Essential

Indirect Costs

NGOs propel impact on the strength of their programs, the peak of the Grantmaking

Pyramid� Funders provide generous support to those programs through grants, yet grants

come with strings attached that hamper NGOs’ ability to pay for nonprogram expenses

that build the base of the pyramid�

Following a nearly universal practice, funders award project grants that cover direct program

costs but limit how much money can be used to pay for indirect costs� Moreover, dierent

program funders have dierent deﬁnitions and policies with respect to indirect-cost coverage,

which further complicates the lives of NGOs� These costs underpin day-to-day operations�

Yet 83 percent of survey respondents reported struggling to secure coverage of indirect

costs� When we analyzed the actual expenditures of 40 well-known NGOs, all with backing

from leading funders, 28 faced a gap between the funding they got for indirect costs from

program funders and what they actually spent� For the group facing this gap, the average

indirect cost rate (total indirect costs expressed as a percentage of total costs) came to

22percent, but major program funders on average paid for only 9percent�

11

That left a

gap of 13 percentage points between the actual indirect costs and average allocations

from major program funders� (See Figure 5�) The funding gap is likely wider for NGOs

that, unlike our sample organizations, do not have access to funders with the policies

andpractices that support indirect-cost funding�

Figure 5. Most NGOs face an indirect-cost shortfall

Twenty-eight of 40 NGOs reported a shortfall in indirect-cost allocations

Slide 3: Most NGOs face an indirect cost shortfall

13

Percentage

Point

Gap

9%22%

Average indirect-cost

expenditures as a

percent of total costs

NGOs reporting a

shortfal in indirect-

cost allocations

Average indirect-cost

allocation from key

program funders

Twenty-eight of 40 NGOs in India reported a shortfall in indirect cost

allocations

28

YES

12

NO

Source: Financial analysis of 40 NGOs in India�

11 In the United States, the indirect-cost rate is commonly calculated by dividing indirect costs by direct costs;

inIndia, the indirect-cost rate is calculated by dividing indirect costs by total costs�

19

NGOs also routinely underreport true indirect cost needs and spending, knowing that funders

will not cover them� As a result, NGOs may end up underbudgeting and underreporting

their indirect costs, and using ﬂexible funding or earned income to cover the gap� Both

approaches erode the prospects of growing impact over the long term� And they reinforce

incorrect funder expectations about actual indirect costs�

While averages paint a broad picture of chronic underfunding, they mask an important

story about individual dierences� Here, our ﬁnancial analysis conﬁrmed what we have

found in similar US studies: no single indirect-cost rate ﬁts all NGOs� Among the 40 NGOs

in our ﬁnancial analysis, actual indirect costs ranged from 5 percent to 51 percent, and

averaged 19percent� (See Figure 6�) The 29 direct-service providers averaged 18 percent;

the 11research and advocacy groups averaged 21 percent� Yet 68 percent of program grants

the NGOs received over a three-year period allocated less than 10 percent for indirect costs�

Clearly, current funder practice does not pay what it takes to cover NGOs’ true costs to

build strong and ﬁnancially resilient organizations� Moreover, within the funder community,

those who underfund grantees’ true costs put pressure on others to subsidize the shortfall�

Figure 6. Actual indirect costs as a percentage of total costs

Bridgespan analyzed expenditures of 40 NGOs in India. Their actual indirect costs

ranged from 5 percent to 51 percent.

Slide 2: Actual indirect costs as a percentage of direct costs

Bridgespan analyzed expenditures of 40 NGOs in India. Their actual indirect costs ranged from

5 percent to 51 percent.

42%

7%

51%

19%

Average

Individual NGOs

0%

20%

40%

60%

Advocacy/research

Direct service

5%

29

11

Indirect costs as a

percentage of total costs

Source: Financial analysis of 40 NGOs in India�

Subsidies often manifest as unrestricted funds, a popular way for NGOs to close the indirect-

cost funding gap� International and domestic funders

12

granted just over INR 112crore in

unrestricted funds to the 40 NGOs in our ﬁnancial analysis over the past three years�

13

While substantial in aggregate, the total represents only about 15 percent of total grants

received by them over the same period� For most NGOs, even that relatively small percentage

contribution would be welcome� Among the 388 survey respondents, 80percent said that

lack of unrestricted funding has limited their ability to innovate and improve programs�

12 Domestic funders include, but are not limited to, philanthropic foundations, trusts, and high-net-worth individuals�

It does not include CSR because CSR provided a negligible amount of unrestricted funding in the sample set�

13 Our ﬁnancial analysis of 40 NGOs showed that international funders contributed INR 73 crore in unrestricted

funding compared to INR 39 crore for domestic funders�

20

Systemic Underfunding Hurts DBA-led and

RuralNGOs More than Others

No groups suer more from foundational cracks in the Grantmaking Pyramid than those

with leaders from Dalit, Bahujan, and Adivasi (DBA) communities and those located in

non-metro or rural areas�

14

Our survey of 388 NGOs, while not fully representative, is striking

in its implications and suggests an avenue for future research�

Sixty survey respondents identiﬁed as DBA-led NGOs� They are twice as likely to operate

outside of the country’s eight largest cities and have modest ﬁnancial resources� Half

reported annual budgets of less than INR 50 lakhs, compared to 30 percent among those

with non-DBA leaders�

Fundraising poses a major challenge� Seventy percent of the DBA-led NGOs had no

budget surpluses over the past three years, and 60 percent had fewer than three months

of reserves in September 2020 after the advent of COVID-19—signiﬁcantly worse on both

counts than non-DBA led NGOs� (See Figure 7�)

Figure 7. DBA-led NGOs face higher ﬁnancial stress than non-DBA-led

NGOs

Slide 10: DBA-led NGOs are smaller and face higher ﬁnancial

stress than non-DBA NGOs

Twice

All three years

Once

Never had a surplus

Non-DBA ledDBA led Non-DBA ledDBA led

70%

22%

45%

60%

53%

23%

8%

9%

7%

28%

8%

2%

10%

8%

12%

18%

15%

Note: Months of operating reserves estimated as the number of months

that expenses can be covered using unrestricted reserves and other liquid

assets.

Source: Bridgespan Group survey of 388 NGOs in India.

Percentage of NGOs reporting an

operating surplus in last three years

Percentage of NGOs by months of

reserves as of September 2020

7-9

10-12 12+

3-6

Less than 3

N = 60 N = 328

Notes: Months of operating reserves estimated as the number of months that expenses can be covered

using unrestricted reserves and other liquid assets� Due to rounding, percentages may not always add up

to 100%�

Source: The Bridgespan Group survey of 388 NGOs in India, September 2020�

14 Eight metro cities were identiﬁed by Census 2011: Ahmedabad, Bangalore, Chennai, Delhi-NCR, Kolkata,

Mumbai, Pune, and Hyderabad� All other cities, towns, villages have been considered non-metro or rural�

21

Sixty-two percent said they do not feel comfortable sharing true indirect costs with funders,

compared to 35 percent of non-DBA led organizations� And 45 percent said that key funders

lack trust in their ability to operate and spend on indirect-cost areas, compared to 33 percent

for non-DBA led organizations�

We believe this disparity between DBA-led and other NGOs reﬂects systemic barriers these

organizations face as they seek philanthropic and CSR funding� Overcoming those barriers

starts by acknowledging caste realities� For example, culture and education-related factors

such as dierences in proﬁciency and comfort with English, and possible dierences in

life experiences compared to those making funding decisions, can cause challenges� Such

dierences could result in conscious or unconscious bias that might adversely aect funding

decisions for DBA-led organizations�

Regardless of who leads the organization, location matters when it comes to an NGO’s ﬁnancial

health� NGOs based in non-metro and rural areas struggle more to build ﬁnancial resilience than

their counterparts in metro areas� Among the 143 NGOs in our survey from non-metro and rural

areas, 61 percent had fewer than three months of reserves in September 2020, comparedto

51 percent for metro-based NGOs� Two-thirds of the non-metro and rural group reported no

surpluses in the last three years, compared to 39 percent of metro-based NGOs� (See Figure 8�)

This disparity reﬂects the practical diculties of ensuring visibility and building trust and

rapport with potential funders, most of whom are based in major cities many kilometers away�

It also reﬂects limited networking opportunities for NGO leaders based outside the metro cities�

Figure 8. Non-metro and rural NGOs trail metro counterparts in

ﬁnancial resilience

Slide 11: Non-metro and rural NGOs trail metro counterparts in

ﬁnancial resilience

Non-metro/RuralMetro

51%

61%

39%

66%

15%

10%

8%

23%

16%

22%

26%

8%

6%

3%

8%

7%

21%

Note: Months of operating reserves estimated as the number of months

that expenses can be covered using unrestricted reserves and other liquid

assets.

Source: Bridgespan Group survey of 388 NGOs in India.

Twice

All three years

Once

Never had a surplus

7-9

10-12 12+

3-6

Less than 3

Percentage of NGOs reporting an

operating surplus in last three years

Percentage of NGOs by months of

reserves as of September 2020

N = 245 N = 143

Note: Months of operating reserves estimated as the number of months that expenses can be covered using

unrestricted reserves and other liquid assets� Eight metro cities were identiﬁed by Census 2011: Ahmedabad,

Bangalore, Chennai, Delhi-NCR, Kolkata, Mumbai, Pune, Hyderabad� All other cities, towns, villages have

been considered non-metro or rural� Due to rounding, percentages may not always add up to 100%�

Source: The Bridgespan Group survey of 388 NGOs in India, September 2020

22

Four Steps to Building Strong and Resilient NGOs

Our survey and ﬁnancial analysis paint a stark picture of NGOs suering from ﬁnancial

stress created by funder-imposed limits on indirect costs, organizational development, and

reserve allocations� It takes all three to build strong, sustainable organizations� Yet, funders

choose to focus narrowly on programs� NGOs go along, convinced that asking for more is

fruitless or may, in fact, create a negative image of their eciency� Thus, current practices

create a vicious cycle of chronic underfunding: funders constrain nonprogram spending,

NGOs accept underfunding as a reality and are reluctant to complain, and thus funders

think they should do more of the same� The result is a subscale sector�

The evidence we have compiled with the help of over 400 survey and ﬁnancial analysis

participants, plus more than 100 stakeholder interviews, begins to address the shortage

of evidence that stands in the way of breaking this cycle, and makes a strong case for

changing minds and practices� The question is how to move from creating awareness of

aproblem to changing mindsets and practices?

We recognize that change will not come easily or quickly given the deeply ingrained

systemic nature of the funding problems NGOs face� Nonetheless, we see a way forward�

Funders and NGOs need to work together to bring about the change� Sector experts and

intermediary organizations also play an important part in advocating for change�

Based on our India and global experiences, and drawing on our interviews with sector

leaders, we have distilled four recommendations that hold promise to set funders and

NGOs on a new path�

1� Develop multiyear funder-NGO partnerships

Funders often regard grants as short-term,

transactional arrangements� As such, funders have

no incentive to understand a grantee’s true costs and

ﬁnancial needs� By contrast, multiyear partnerships

nurture trust built on mutual understanding�

Funders should take the time to get to know their

grantees, raising their comfort level by committing

to multiyear grants that serve both parties� “Once

trust is established, we leave the actual expenditure

to grantees� Our focus is on actual achievement of

goals,” said one funder�

Partnerships lay the groundwork for funders to take an organization-building perspective

with grantees, resulting in paying what it takes for NGOs to succeed� Closer partnerships

are often built on transparency and communication, which both funders and NGOs can

advance� For example:

• Funders can encourage grantees to provide more transparency about their true costs

and expenditures, and to candidly share the challenges NGOs face in fulﬁlling their

missions� They can then reward transparency with multiyear partnerships that provide

ﬂexible, unrestricted capital�

“

Once trust is established,

we leave the actual

expenditure to grantees�

Our focus is on actual

achievement of goals�”

ANONYMOUS FUNDER

23

• NGOs beneﬁt when they pursue partnerships with funders who closely align with

their mission and goals� Thus, when approaching funders, they can build relationships

supported by three-to-ﬁve-year strategic plans and ﬁnancial projections, and engage

funders in conversation about the investments needed to achieve meaningful long-term

change, not just short-term activities�

2� Close the indirect-cost funding gap

Indirect costs aren’t, as we heard from some stakeholders, “a waste of money�” Rather,

they include expenditures essential to the success of an organization, such as salaries for

administrative sta and leadership, fundraising expenses, and rent and electricity�

Closing the indirect-cost funding gap will require funders to change the way they think

about grantmaking, something NGOs can facilitate by clearly communicating their needs�

For example:

• Funders can establish practices to determine and pay a fair share of grantees’ indirect

costs� That means engaging NGO leaders in conversations about their speciﬁc needs, and

not relying on low, ﬁxed indirect-cost rates as a substitute for true costs� Funders also can

insist on appropriate measures for reporting the impact of the money expended�

• NGOs can invest in determining their actual indirect costs, something too few currently

do, and convey those costs to funders along with a clear explanation of how those

expenditures underpin the impact funders want to achieve� Clarity around actual costs

would undercut reliance on ﬁxed indirect-cost rates by clearly showing that costs vary

with dierent types of NGOs and their stage of maturity� This shared knowledge would

open the door for frank discussions about paying what it takes to deliver and scale

eective programs�

Cost transparency and open communication on cost structures and eciencies would

also enhance mutual trust� As mutual trust grows, funders can increase unrestricted

grants that enable NGO leaders to put money to nonprogrammatic priority uses�

3� Invest in organizational development

For NGOs to grow, they must invest in organizational development, such as strategic

planning, leadership development, and technology infrastructure� NGOs typically pay for

organizational development out of unrestricted funds, but such funding remains relatively

scarce, which reﬂects the current lack of trust between funders and grantees�

• Funders can start by providing training to their own grant sta and program ocers

to understand the importance of investing in grantees’ organizational development�

Internal sta awareness, in turn, facilitates communicating that message to grantees�

It also helps for funders to be clear with grantees about the capabilities they prioritize,

such as leadership development, fundraising, measurement and evaluation, or strategic

planning� Those needs change with dierent missions and levels of NGO maturity�

Funders also can provide grantees with information, toolkits, and network connections

to help them conduct self-assessments for short-term and long-term organizational

development needs�

24

• NGOs beneﬁt by sharing an assessment of their organizational development needs

and what those needs will cost in the short term and the long term� Those assessments

should make clear that failure to fund organizational capabilities, such as leadership

development, fundraising capacity, and technology, among others, will constrain

growth and ability to meet impact goals� NGOs can also make the case for unrestricted,

multiyear grants in order to invest in organizational capability improvements� They

can cite examples of peer organizations that have used such grants to improve

organizational capabilities�

4� Build ﬁnancial reserves

The COVID-19 pandemic put a spotlight not only on the role that NGOs play by serving

low-income and marginalized communities, but also on the need for NGOs to have cash

reserves to survive a sudden plunge in funder support� Sixty-three percent of our survey

respondents lost funding during the pandemic� For many, this drop in grants coincided

with a sharp increase in demand for services� Cash reserves cushion such unexpected

shortfalls, and, for many, make the dierence between survival and shutting down�

Afewways to address reserves include:

• When possible, funders should be open to building NGO reserves� The Indian Finance

Act of 2017 restricts some funders (e�g�, charitable trusts) from providing grants for

NGO reserves, but some others (e�g�, high-net-worth individuals) are permitted to do

so� Funders also can encourage grantees to take advantage of a provision in the Income

Tax Act that permits NGOs to set aside up to 15 percent of a year’s donations to build

reserves� Funders can initiate conversations about reserves by asking grantees about

the challenges they face in building surpluses�

• NGOs need to help funders understand the importance of generating surplus and

raising reserve funds to build ﬁnancial resilience� When NGOs think longer term about

fundraising, their strategies might also include seeking multiple funders and articulating

the connections between ﬁnancial health and the ability to grow and achieve impact�

25

Pursuing an End to Systemic NGO Underfunding

Funders and their grantees share a commitment to making progress on solving some of

society’s most pressing problems� To succeed, the NGOs that do the day-to-day work

on the ground need organizational strength and ﬁnancial resilience� Yet, current funding

practices provide neither, with predictable results� Chronic underfunding undermines the

impact funders and NGOs strive for�

This is a complex, systemic issue, and all stakeholders need to work together to solve it�

But funders hold the purse strings, which puts

responsibility for leadership in their court�

“Funders cannot just pay for change, they must

participate in it,” said Gautam John, director

of strategy for Nilekani Philanthropies� “There

is a power imbalance, and so funders need

to act and do what it takes to move toward

trust-based philanthropy and collaboration�”

Funders alone can create the enabling context

that provides a safe space for their grantees to

come forward and have frank discussions about

their ﬁnancial needs, a necessary condition

forchange�

With so much to do, and so much at stake, it is understandable for a funder to feel

overwhelmed and uncertain about where to start� We suggest three immediate actions�

Right away, reach out to grantees and understand their true funding needs� Simultaneously,

reﬂect on your own policies and how they contribute to chronic underfunding� And resolve

to reﬁne those policies as needed to advance change, drawing on the experience of peers

that have already committed to investments in nonprogram costs� Use the four steps

outlined above to guide your eorts� And commit to the long haul� Systemic change takes

time and requires multiple small course corrections�

Funders can also play a role in developing an ecosystem to support the social sector� NGOs

need access to research, accounting, talent development, and ﬁnancial services providers,

which are still few in number in the Indian nonproﬁt sector� These are the organizations that

can create the missing benchmarks, standards, and norms to guide as well as support

NGOs in organizational development and funders in true-cost grantmaking� Funders can

also take alook at their practices and identify how they may be creating more challenges

for certain communities over others�

Implementing these recommendations will require many funders and NGOs to engage in

unfamiliar conversations� The Grantmaking Pyramid sets the stage by drawing attention to

foundational, organizational, and ﬁnancial resilience needs� This broader perspective leads

to discussions that explore what it takes to build strong organizations, and ensures that

key capabilities and ﬁnancial resilience get the support needed to underpin delivery of

eective programs�

“

Funders cannot just pay for

change, they must participate in

it� There is a power imbalance,

and so funders need to act and

do what it takes to move toward

trust-based philanthropy and

collaboration�”

GAUTAM JOHN, DIRECTOR OF STRATEGY,

NILEKANI PHILANTHROPIES

26

Pursuing that path will require patience and perseverance to overcome deeply ingrained

attitudes and practices cultivated over many years� But funders that have already adopted

a true-cost approach have found that it pays dividends by ending the insucient and

restrictive funding practices highlighted in this report� The evidence in hand argues

powerfully that it is time for funders to ensure that NGOs have the resources they need

tobuild the organizational strength and ﬁnancial resilience to help solve some of society’s

most pressing problems�

Pritha Venkatachalam and Donald Yeh are Bridgespan partners based in Mumbai. Also in

Mumbai are Shashank Rastogi, a Bridgespan principal; Anushka Siddiqui, a consultant;

Umang Manchanda, a senior associate consultant; and Kanika Gupta, an associate

consultant. Editorial Director Roger Thompson is based in Boston.

27

The Impact of Regulatory Changes

Recent changes to corporate social responsibility (CSR) and foreign funding regulations are

expected to have a positive eect on NGO funding�

15

India became the ﬁrst country to require CSR with passage of Section 135 of Companies Act

in April 2014� The act made it mandatory for companies with a certain turnover, net worth,

and proﬁtability to spend 2 percent of their average net proﬁt for the preceding block of

three years on CSR� In the ﬁrst ﬁve years of implementation, some 29,000 companies spent

acumulative INR 72,000 crore on CSR�

16

Cash-strapped NGOs have been grateful for the money, but it was typically allocated toward

short-term goals and neglected nonprogram costs� Among the 40 NGOs participating in our

ﬁnancial analysis, the average CSR indirect-cost reimbursement rate was 10 percent, half the

average true cost rate, and lower than both domestic (13 percent) and international (12 percent)

funders� CSR funders also avoid unrestricted grants� The ﬁnancial analysis participants received

INR 256 crore from CSR donors over three years, but none of that was unrestricted funding�

Some CSR funders operate under the mistaken notion that regulations limited them to only

5 percent allocations for indirect costs� In fact, the 5 percent restriction applied to what

companies could spend on CSR implementation� “A company is not supposed to spend more

than 5 percent on administration� But they try to impose it (the 5 percent cap) even on NGOs,

and I think that’s very unfair,” said Noshir Dadrawala, CEO of the Centre for Advancement of

Philanthropy� Rule changes made public on January 22, 2021 clariﬁed that the 5 percent limit

refers to expenses incurred by the company for general management and administration of its

CSR function, not to NGO indirect costs�

Several NGO leaders expressed frustration over receiving year-to-year funding, rather than

more beneﬁcial multiyear commitments� The new rules allow companies to undertake multiyear

funding, up to four years (three years excluding the year of commencement)� Moreover, NGO

leaders report that CSR funders routinely shun allocating money for organizational development

or building reserves, although regulations permit them to do both�

Among our interviewees, NGOs with the most positive CSR experiences reported working with

companies that had professionalized their CSR operations� That means hiring sta with social

sector experience and who understand the need for covering actual costs, capacity building,

and ﬁnancial stability� An increasing number of companies are taking this approach�

The new CSR rules will promote professionalization� Companies for the ﬁrst time can work

with international organizations recognized by the United Nations to assist with designing,

monitoring, and evaluating their CSR projects�

17

International organizations also can advise

companies on building their own capacity to implement CSR projects� In addition, companies

spending on average INR 10 crore on CSR projects annually must undertake impact assessments

of their projects through an independent agency�

continued overleaf

15 This sidebar reﬂects regulations at the time of our research, ending in early 2021�

16 India Data Insights, “India’s CSR Story,” August 7, 2020�

17 “International organization” means an organization notiﬁed by the Central Government as an international

organization under section 3 of the United Nations (Privileges and Immunities) Act�

28

The Impact of Regulatory Changes (continued)

Meanwhile, recent changes to the Foreign Contribution Regulation Act (FCRA) will alter

how NGOs, especially smaller ones, sustain their operations� In September 2020, Parliament

approved changes designed “to prevent the misuse of foreign funds�” In the past, larger NGOs

often received sizeable foreign donations, which totaled INR 16,343 crore in 2018-19, that

they transferred to numerous smaller NGOs, a practice known as “subgranting�” In 2018-19,

some 4,107 NGOs registered in 380 districts—or about one in ﬁve FCRA NGOs—received such

subgrants�

18

That practice is no longer permitted, causing many small NGOs in rural or remote

areas to fear they will not be able replace the lost funds�

In addition, FCRA-registered NGOs now must limit their administrative expenses to 20 percent

of foreign donations, down from 50 percent� The reduction hits research and advocacy

organizations hardest since they have the highest administrative costs�

Regulations also govern how NGOs can build operating reserves� The Indian Finance Act

of 2017 restricts some funders (e�g�, charitable trusts) from providing grants to build NGO

reserves, but some others (e�g�, high-net-worth individuals) are permitted to do so� While

the Income Tax Act permits NGOs to set aside up to 15 percent of a year’s donations to build

reserves, few NGOs appear to be aware of this provision in the law� Practically speaking,

interviewees told us that the provision is of little beneﬁt because most NGOs do not have

unspent money at the end of theyear to put into a reserve account�

18 “India’s crackdown on NGOs, in four charts,” Mint, September 30, 2020�

29

Acknowledgments

We are deeply grateful to all the NGO leaders and stakeholders in this study for participating

in the interviews, the survey, and the detailed ﬁnancial analysis� We appreciate their time,

eort, and insightful contributions� We also thank the social sector inﬂuencers, service

providers, and funders who helped us understand the challenges faced in true cost funding

and organizational development in India�

A heartfelt thank you is due to Sandra Fallon and Pinky Thakkar for their operational and

logistical support� We are also indebted to our Bridgespan colleagues Carole Matthews

and Jen Driggs for their support in editing and designing this report, and Liz London and

Ryan Wenzel for their support in marketing and dissemination� We appreciate the strategic

guidance provided by our US-based colleagues Gail Perreault, Michael Etzel, Jeri-Eckhart

Queenan, Julia Silverman, and Rachel Dickens throughout the project�

A number of sector organizations have provided invaluable insight, guidance, and support

to our project� We would like to thank the Center for Social Impact and Philanthropy,

Dasra, Danamojo, Nudge, Samhita, and VANI for providing support in dissemination of

our survey electronically� We are thankful to Sunita Bhadauria for translating the survey

to Hindi, and Bala Rastogi for editorial support on it� In addition, we would like to thank

GuideStar India for their support in data collection and assimilation� We are grateful to

KPMG in India for analyzing the accounts and ﬁnancials of a sample set of NGOs during

the study to help us derive insights pertaining to funding to NGOs�

This body of research would not be possible without the support, counsel, and guidance

of the ﬁve anchor partners in this multiyear initiative� We are grateful for their time and

eort toward this important topic�

We also are grateful to the JPB Foundation for its support of Bridgespan’s knowledge

work for the Pay-What-It-Takes India initiative and other research projects�

30

Anchor Partners in the Pay-What-It-Takes

IndiaInitiative

A.T.E. CHANDRA FOUNDATION (ATECF)

ORGANIZATION DESCRIPTION

One of India’s leading philanthropic foundations, by scale, it works with a strategic

problem-solving approach to address social issues in two core verticals:

A. Social Sector Capacity Building—ATECF makes high-multiplier investments broadly

serving the sector by being one of the largest sponsors of leadership development

programs for NGOs; investing in helping a range of organizations build their core capability;

disseminating learnings for the greater beneﬁt of the sector; and investing in systemically

important organizations and movements�

B. Sustainable Rural Development—ATECF combines data and people-driven approaches

to create templates for solving problems in rural India at scale by anchoring one of the

largest water for farmers initiatives via rejuvenation of water bodies; propagating natural

farming to enhance marginal farmer incomes; and by adopting eight villages in Beed

district for holistic transformation�

CHILDREN’S INVESTMENT

FUND FOUNDATION (CIFF)

ORGANIZATION DESCRIPTION

CIFF is the world’s largest philanthropy that focuses speciﬁcally on improving children’s

lives� CIFF has oces in Addis Ababa, Beijing, London, Nairobi, and New Delhi� It works

with partners to tackle challenges across child health & development, climate change,

sexual reproductive health and child protection aiming to play a catalytic role as a funder

and inﬂuencer to deliver urgent and systemic change at scale�

31

EDELGIVE FOUNDATION

ORGANIZATION DESCRIPTION

EdelGive Foundation is the philanthropic initiative of Edelweiss Group� It functions as a

grantmaking organization, helping build and expand philanthropy in India by funding and

supporting the growth of small to mid-sized grassroots NGOs committed to empowering

vulnerable children, women, and communities� Grants are used for both ﬁnancial and

capacity building needs of the organizations supported� This approach has enabled

EdelGive to be a go-to partner of choice for Indian and foreign funders wanting to

engage with the Indian development ecosystem�

EdelGive’s unique philanthropic model places it at the center of grantmaking, by providing

initial grants and by managing funding from other institutional and corporate partners�

Consequently today, EdelGive functions as a philanthropic fund manager and advisor

between grantmakers and credible NGOs�

FORD FOUNDATION

ORGANIZATION DESCRIPTION

The Ford Foundation has been working in India since 1952� Over the past 60 years,

ithas made more than 3,500 grants in the region, totaling more than $508 million to

nearly 1,250 diverse institutions� We are proud of our ongoing partnership with India’s

government, universities, charitable sector, and civil society, as well as the many South

Asian regional organizations with which we work�

32

OMIDYAR NETWORK INDIA

ORGANIZATION DESCRIPTION

The Omidyar Network India invests in bold entrepreneurs who help create a meaningful life

for every Indian, especially the hundreds of millions of Indians in low-income and lower-

middle-income populations, ranging from the poorest among us to the existing middle

class� To drive empowerment and social impact at scale, we work with entrepreneurs

in the private, nonproﬁt and public sectors, who are tackling India’s hardest and most

chronic problems�

We make equity investments in early stage enterprises and provide grants to nonproﬁts in

the areas of Digital Society, Education, Emerging Tech, Financial Inclusion, Governance &

Citizen Engagement, and Property Rights� Omidyar Network India is part of The Omidyar

Group, a diverse collection of companies, organizations and initiatives, supported by

philanthropists Pam and Pierre Omidyar, founder of eBay�

33

Appendices

Appendix A: Research Methodology

19

We adopted a three-pronged, mixed-methods research approach to inform this report�

First, we conducted in-depth interviews with more than 100 individuals—NGO leaders,

social sector inﬂuencers, service providers, and funders—to understand the nuances of the

funding challenges faced by NGOs in the Indian social sector� (See the list of organizations

and individuals in Appendix D�)

Second, we conducted a detailed ﬁnancial analysis of 40 NGOs (a subset of portfolios of

our ﬁve anchor partners) with the assistance of KPMG India, in order to assess ﬁnancial

health and challenges faced in indirect-cost coverage by these NGOs� The analysis is

based on the data voluntarily shared by participating NGOs� We took steps to maintain

data quality and NGO anonymity� We developed a cost allocation methodology that

could be customized for dierent operating models, created a standardized template

for data collection from NGOs, and had multiple discussions with NGOs to conﬁrm and

classify major costs as direct and indirect expenditures� Lastly, where possible, we cross-

checked data against audited ﬁnancial statements and publicly available information� The

methodology uses a weighted average across three ﬁnancial years (2017-18, 2018-19, and

2019-20) for NGO-level metrics, and simple average across multiple NGOs for sector-level

(and other aggregate) indicators (unless noted otherwise)�

Third, we surveyed a broader group of NGOs in September-October 2020 to capture

abroader representation of organizations in India� In order to reach a large and diverse

audience, the survey was translated to Hindi and disseminated through email, newsletters,

and social media with the help of outreach partners� We received 388 unique responses

from NGO leaders, including 22 responses to our Hindi survey� These responses cover a

wide range of NGO sizes (in terms of annual expenditure and team size), sectors, focus

areas, and geographies, representing a range of India’s NGOs�

We took steps across all three methods to mitigate bias where possible:

• To mitigate selection bias, a diverse sample of NGOs (by size, location, operating

model, etc�) was selected for the ﬁnancial analysis (within the parameters of the anchor

partner portfolio); outreach for the survey was conducted through multiple channels in

two languages�

• To mitigate sampling bias, multiple channels and partners disseminated the survey�

Itwas also translated in Hindi to partially overcome language barriers�

• Lastly, to mitigate conﬁrmation bias, feedback was solicited on insights from external

experts� This included sharing preliminary ﬁndings with a group of intermediaries in

a focus group discussion as well as with our anchor partners during periodic steering

committee meetings�

19 Detailed methodology available upon request�

34

Limitations of our research:

• All data points and inputs received in the survey, ﬁnancial analysis, and interviews are

self-reported and have not been independently validated or audited� Despite our best

eorts, there may be factors such as small sample size, selection bias, self-reporting

bias, etc� that limit the accuracy of our analysis�

• The ﬁnancial analysis was conducted on a set of NGOs from the anchor partner

portfolios that consented to participate� Given that these NGOs have access to large

funders who support nonprogram costs, the ﬁndings from this analysis are likely an

underestimate of the challenges faced by NGOs in the broader Indian social sector�

• The ﬁnancial analysis was carried out by KPMG India for the limited purpose of assisting

The Bridgespan Group for the Pay-What-It-Takes India Initiative based on the data

provided by the NGOs to derive insights pertaining to funding to NGOs� It should not

beconstrued as an audit or validation of cost structures of any of the NGOs covered

in this project� The analysis and KPMG India’s brand should not be used beyond the

purpose of the project�

Additionally, the distribution of costs between direct and indirect costs was based on

rationale provided by the NGOs� Independent veriﬁcation of the rationale and allocation

logic was not possible under the scope of our research�

35

Appendix A: The Impact of Investment in Organizational

Development

We wanted to know whether investment in organizational development had a positive

impact on NGO growth and ability to generate ﬁnancial surpluses to build reserves� Given

limitations of available data, we looked at two data sets—one from our survey and one

from the ﬁnancial analysis� Even then, our analysis could only provide a directional sense

of the positive impact that organizational development expenditures because the sample

size in both cases is limited�

For our analysis, in both data sets, we looked at NGOs intentionally investing in organizational

development and compared them to a control group of those that are either not investing

in organizational development or have not been strategic/intentional in their investment�

In the survey data set, we categorized NGOs that said they “invest suciently” and have

“funders that support organizational development” as being intentional� We started with

a list of 30 NGO respondents in this set, but complete ﬁnancial data were available only

for 10 NGOs in this group� For the control set, we took an equal random sample of those

that said they “do not invest suciently�” For the ﬁnancial analysis data set, we created

the treatment and control groups based on how strategic the NGOs were in investing in

organizational development, based on their responses to questions in our conversations

with them�

We considered growth in their expenditures over the past ﬁve years as a proxy for scale

as well as for the ability to generate surplus and create reserves� We measured growth

in expenditures as compound annual growth rate (CAGR) calculated based on two-year

moving averages� The analysis indicated that spending on organizational development

hasa positive eect on the organization’s growth�

Limitations of our research:

• Given limited availability of data, the sample size in this analysis is small� Despite starting

with a much larger sample size for the survey set, lack of publicly available data

constrained our ability to expand the analysis to a wider set of NGOs�

• The quantitative analysis for organizational development provides a directional sense

of the impact of investment in organizational development, and does not establish

causation by itself� It conﬁrms the ﬁndings of our qualitative assessment, which we

conducted through focused interviews with more than 20 NGOs�

36

Appendix A: Proﬁle of NGOs in Our Analysis

A 2018 Bridgespan survey of 949 NGOs from GuideStar India’s database found 85percent

percent have an annual expenditure of less than INR 5 crore� The survey for this report

found a similar pattern� Forty-seven percent reported less than INR 1 crore annual

expenditure, and 36 percent reported between INR 1 and 10 crore annual expenditure�

By contrast, the 40 NGOs participating in our ﬁnancial analysis ranged from medium-sized

(65 percent) to large and received ﬁnancial support from some of the top domestic and

international funders in India�

The survey sample represents the range of NGO sizes in India

ANNUAL EXPENDITURE COUNT PERCENTAGE

Small 181 47%

Medium 141 36%

Large 66 17%

TOTAL 388 100%

The ﬁnancial analysis includes NGOs supported by top funders in India

ANNUAL EXPENDITURE COUNT PERCENTAGE

Small 2 5%

Medium 26 65%

Large 12 30%

TOTAL 40 100%

Note: Small NGOs—less than INR 1 crore annual expenditure, Medium sized NGOs—INR 1-10 crore annual

expenditure, Large NGOs—more than INR 10 crore annual expenditure�

37

Appendix D: Entities that Supported Our Research

20

We would like to thank the many representatives of the 80-plus organizations we

interviewed for their contributions to this report� We are grateful to all the people we

spoke to during this research, without whom, this research would not have been possible�

20 NGOs marked with an asterisk have participated in the ﬁnancial analysis� We are grateful to them for the time

and eort they invested in this research� One NGO preferred to stay anonymous�

NGOS

Area Networking and Development Initiatives (ANANDI)*

Antarang Foundation*

Apnalaya*

Arpan*

Association for Advocacy and Legal Initiatives (AALI)*

Centre for Health and Social Justice (CHSJ)*

Centre for Internet and Society (CIS)*

Centre for Science & Environment (CSE)

Centre for Social and Behaviour Change (CSBC)

CORO India*

Center for Study of Science, Technology and Policy (CSTEP)*

Development Support Centre (DSC)*

Educate Girls*

eGovernments Foundation*

Ekjut

Foundation for Ecological Security (FES)*

Foundation for Excellence (FFE)*

Girl Eect

Gramin Vikas Vigyan Samiti (GRAVIS)

Gyan Prakash Foundation (GPF)*

Ibtada*

Ideosync Media Combine

IDFC Foundation

IT for Change*

Jai Vakeel Foundation

Jan Sahas*

38

NGOS

Janaagraha*

Kaivalya Education Foundation*

Kutch Mahila Vikas Sangathan (KMVS)*

LeapForWord*

Manavlok

Mann Deshi Foundation*

MicroX Foundation*

National Foundation for India

Olympic Gold Quest (OGQ)

Parivaar

Partners for Law in Development (PLD)

Population Foundation of India (PFI)*

Professional Assistance for Development Action (PRADAN)

Praja Foundation*

Prayas*

Project Kaveri

PRS Legislative Research*

Quality Education Support Trust (QUEST)*

Quest Alliance*

RAZA Educational and Social Welfare Society*

Saajha*

Sama Resource Group for Women and Health

Samaritan Help Mission*

Sanjog

Society for Education, Action and Research in Community Health (SEARCH)

Sikshasandhan*

South Orissa Voluntary Action (SOVA)*

Sshrishti India Trust*

Tandem Research

The/Nudge Foundation

Vasundhara

Vidhi Centre for Legal Policy*

Vikas Samvad Samiti

World Resources Institute (WRI) India*

The YP Foundation*

THE BRIDGESPAN GROUP

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39

SOCIAL SECTOR INFLUENCERS

AND SERVICE PROVIDERS

Anand Bang (personal capacity)

Aria CFO Services

Centre for Advancement of

Philanthropy (CAP)

Centre for Social Impact and

Philanthropy (CSIP)

Dasra

GiveIndia

GuideStar India

Humentum

Ireena Vittal (personal capacity)

Samhita

Sanjay Aditya & Associates

Sattva

FUNDERS

A�T�E Chandra Foundation (ATECF)

Children’s Investment Fund

Foundation (CIFF)

CIPLA Foundation

EdelGive Foundation

Ford Foundation

Hindustan Unilever Foundation (HUF)

H� T� Parekh Foundation

Rohini Nilekani Philanthropies

Omidyar Network India

Tata Trusts