Functioning of NGOs is no different than a for-profit business organisation except that NGOs work for a social cause and not for giving returns to the investors. NGOs face all challenges that a for-profit enterprise faces – funding, attracting, and retaining talent, running operations (projects), delivering impact and so on.

Funding of projects has always been one of the top 3 challenges. Corporate sector also has this challenge, but they have been innovative and figured out solutions through financial products, risk capital, capital markets and so on. The Social sector also needs to think out of box and create its own “products” and models that will help them de-risk (over reliance on CSR funding) and fund its survival and growth. CSR has evolved as a dominating funding source in the last decade. However, it operates in a very restricted framework – in terms of causes, utilization, demonstrating impact in a shorter term.

Being an increasingly regulated sector, especially its financing, innovation in the social sector will be possible only on blessings from Regulators. Keeping this hurdle in mind, here are some thoughts on how NGOs could look at financing their operations from non-traditional sources.

·        Diversify funding avenues – reduce excessive reliance on CSR or Government grants. Within CSR – have multiple donors.

·        Identify sources that would fund non-project costs – investments in organisation strengthening, technology are some examples.

·        Non-project costs or unrestricted funding can be sourced from Capital grants, donations from individuals and Foundations, even by developing streams of income from services the NGO can offer.

·        Institutions like the Social Stock Exchange should enable structuring of funding instruments that would fund the otherwise non-fundable genuine causes of NGOs. Policy makers have not been favourable to allowing the sector to get creative on funding sources. The challenge is how does the social enterprise return the fund. Unless the funding is in the nature of grant or donation or consideration for services rendered, the funding will have a cost (interest) and will have to be returned. Maybe a debt instrument which gets traded without being redeemed with a tax incentive built in could be structured. 

·        Evaluate possibilities of improving return on assets (especially Fixed assets) by monetizing their usage.

·        Closely look at the “assets” that are being created during day-to-day operations – processes, methodologies, tech solutions, empirical data. Avenues to monetize these assets by offering them to other NGOs could be explored.

Each of these would need a deeper drill down and tying the ends of regulatory freedom, attractiveness, and relevance to the NGO’s cause.  

Considering the urgent and widespread need of the sector, concerted efforts are needed to experiment and come out with creative “products” and solutions that will not expose the sector to the mercy of one set of donors.

At Seva Tarang, over the next few months, we plan to explore some of these avenues in greater detail and come up with financial products customised to social sector needs.