Philanthropy's Great Convergence

AT THE START OF COVID-19, India had 14 laboratories capable of diagnosing SARS-CoV-2 (corona) virus. By the time the fear of the pandemic faded, the number was 3,000. Cost of domestic test kits fell 60% from $8 to $3 during the period. The partnerships that made this happen were stitched together by U.S.-based The Rockefeller Foundation. The foundation's funding to the Indigenization Of Diagnostics Initiative enabled drastic reduction in price of test kits, ten-fold increase in PCR (polymerase chain reaction) diagnostic machine manufacturing and dramatic expansion of testing capacity. The insights acquired were adopted for G20's medical countermeasures platform under India's presidency.

During Covid-19, Reliance Industries Ltd. (RIL), India's top corporate social responsibility (CSR) spender, supplied 1,000 metric tonnes liquid medical oxygen every day for over one lakh patients, distributed over 8.5 crore meals to frontline workers and vulnerable communities, funded over 40 lakh vaccinations and set up 2,000-plus hospital beds. In FY21, RIL, through Reliance Foundation, spent a record ₹922 crore on CSR. Overall India Inc.'s CSR contributions were the highest that year, ₹26,211 crore (₹4,313 crore from public sector enterprises), spent in 14 development sectors. Companies with certain scale have to spend 2% of average net profit of previous three years on social sector initiatives under CSR rules. At the other end of the spectrum are impact, or for-profit, investments in sectors and technologies delivering big social impact.

In FY22, $18.7 billion was spent on social activities and projects in the country, says India Philanthropy Report 2023, prepared by non-profit organisation Dasra and global consultancy Bain & Co. While CSR was $3.3 billion, family philanthropy and contributions from family offices, ultra high net worth individuals, high net worth individuals and affluent accounted for another $3.6 billion. Retail philanthropy added up to $4 billion. Foreign funds from private foundations were another $2 billion. Apart from this, impact investments amounted to $5.8 billion. While CSR spending expanded 13% a year from FY17 to FY22, family philanthropy grew 12%. Community donations rose 6% annually from FY17 to FY22. However, foreign funding has been more or less stagnant, with share of private foreign donations declining to 14% from with 15% in FY21 and 21% in FY17.

Though this is a drop in the ocean (Central and state governments contributed over 90% of $276 billion India spent on social causes in FY22), the non-government philanthropic ecosystem is undergoing massive changes right from how the funds are sourced and intervention targets selected to outcomes achieved. Unlike government funding that attempts to mainly alleviate extreme poverty, such philanthropy is focused on creating sustainable models that can be a template for social growth among the large section of the population that is above poverty line but much below the comfort zone of the middle income group. It is also moving towards convergence — philanthropy funds are nurturing innovative ideas for larger social good, CSR funds are helping roll out projects and impact investments are helping ventures scale up and make a change in the society.

The report also indicates where the money is flowing. Health, food, poverty alleviation, malnutrition, drinking water and sanitation got around 38% CSR funds in FY22. Initiatives for education, livelihood and differently-abled received another 32%. CSR contributions are expected to sustain historical growth and reach $6.4 billion (₹52,000 crore) by FY27, says the report, adding that community philanthropic giving will rise 9% annually due to expansion of middle class and growth in number of donors. It will account for 29% private philanthropy by FY27, it adds.

Unlike philanthropic and CSR funding, impact funds focused on sectors with commercially viable social enterprises. The annual report of Impact Investors Council (IIC) says financial inclusion, technology for development (Tech4Dev), climate-tech and agriculture attracted over 80% impact investments by value in 2022. "One out of three impact investments went to climate-tech start-ups. Tech4Dev investments also rose. Driven by proliferation of innovative, low-cost tech models in areas such as social commerce and regional/local language and content, the sector saw a 50%-plus rise in seed-stage transactions," says the IIC report. While impact investments in 2022 ($5.8 billion) were lower than in 2021 ($6.8 billion), the number of investments was higher (345 in 2021 vs 411 in 2022). The number of start-ups getting support has been increasing. In last five-six years, average growth in number of enterprises receiving investment has been over 20%. Trends suggest the number will go up in 2023," says Ramraj Pai, chief executive officer, IIC.

Every rupee counts for development. Though government social sector spending — free foodgrain, fertiliser subsidy, job guarantee schemes, drinking water and sanitation, etc — grew 35% to 9.6% of GDP in FY22 from 8.6% in FY21, it is significantly short of 13% of GDP that is needed to meet United Nations' 17 Sustainable Development Goals by 2030. The deficit for FY22 is $94 billion (₹7.7 lakh crore), says NITI Aayog. Also, an increasing number of private investments and donations are going into technologies and businesses whose impact can be much more than the amount spent. Private participation, however small, is important. Covid kits, for instance, was not The Rockefeller Foundation's first initiative in India. Its Smart Power India, launched a decade ago, showed how mini-grids can transform lives and economic outcomes. The foundation drew in its India experience to include Myanmar and key markets in Sub-Saharan Africa, Latin America and the Caribbean and expanded focus from mini-grids to distributed renewable energy solutions. "With more than a decade of investment and partners, The Rockefeller Foundation has helped connect more than a million people in India and elsewhere to clean energy. This work helped to inspire and later incubate the Global Energy Alliance for People and Planet, which is on its way to connecting a billion people to electricity, cutting four billion tonnes of emissions, and creating 150 million jobs," says Rajiv J. Shah, president, The Rockefeller Foundation.

The CSR Story

In July 2022, Ministry of Corporate Affairs allowed companies to claim expenses on mass production and supply of National Flag and related outreach and amplification as CSR expenditure. This was just after Central government had announced its Har Ghar Tiranga campaign. Contributions to government funds such as Swachh Bharat Kosh, Clean Ganga Fund, Prime Minister's National Relief Fund, Prime Minister's Citizen Assistance And Relief In Emergency Situations Fund were already allowed as CSR expenditure. However, a majority of companies are not taking the easy option of donating to government funds. They are spending through own foundations or handing over money to non-government organisations (NGOs). Companies spent ₹17,098.57 crore on 26,585 CSR projects in FY18 and ₹25,932.79 crore on 42,440 projects in FY22. CSR projects approved by RIL board for FY24 show the scale of the effort. RIL, which claims to have touched the lives of more than 6.95 crore people in more than 54,200 villages and several urban locations through CSR, has identified projects related to rural transformation, health, education, sports, women empowerment, environment, disaster management, arts, culture, heritage and urban renewal.

If RIL is carrying out CSR activities under Nita Ambani, founder and chairperson of Reliance Foundation, HDFC Bank, the second-highest CSR spender in FY22, is focusing on financial literacy/inclusion, skill development & livelihood enhancement, rural development and healthcare through dozens of NGO partners. Tata Consultancy Services (TCS), the third-biggest CSR spender in FY22, is taking technology to the grassroots. "We focus on areas where we can make the most impact, preferably at the intersection of what we are good at, what society needs and what can be provided by leveraging our intellectual, technology, human and financial capital," says Balaji Ganapathy, global head, CSR, and chief social responsibility officer, TCS.

However, the CSR effort is concentrated among large companies; over 80% funds come from large and medium companies. While public sector companies may have to consider the priorities of the government of the day, for large corporations, CSR has become a much more organised function, say experts. "Four years ago, CSR decision-making for large corporations was vastly different from today," says Sumit Tayal, COO, Give India. "There have been changes right from selection of projects to their monitoring. Companies are not focusing only on compliance but impact, too. They want to know if any of these projects will sustain six months from now," says Tayal. Give India works with nearly 100 corporates and other donors to source funds for NGOs.

The Private Philanthropy

With disbursement of ₹860.5 crore in FY22, Sir Ratan Tata Trust and Allied Trusts (Tata Trusts) continues to be a formidable philanthropy organisation, one that inculcated ‘giving’ in its DNA long before the concept of CSR was born. Led by healthcare, with focus on 'distributed model of cancer care,' the grants cover education, innovation, water, poverty alleviation, energy and rural upliftment. Several of Tata Trusts' focus areas are also eligible for CSR and thus can access CSR funds of Tata Group companies.

Azim Premji Foundation is another example of philanthropy funding. Azim Premji, who set up the foundation in 2001, has over past several years donated most of his wealth and created a philanthropic endowment valued (as of January 2023) at approximately $29 billion (₹2,40,000 crore) to fund the foundation.

Dasra-Bain's India Philanthropy Report 2023 considers contributions by ultra high net worth individuals (UHNIs), high net worth individuals (HNIs) and affluent givers as family philanthropy — money donated can be used for any social cause; in contrast, CSR funds have to be spent on specific projects. Family offices set up by UHNIs, hence, can be a source of long-term capital for disruptive projects. Affordable cancer treatment, the focus of Tata Trusts, could be one. World-class higher education, the priority of Azim Premji Foundation, could be another.

The report says UHNI philanthropic donations dropped from ₹11,811 crore in FY21 to ₹4,230 crore in FY22, largely due to Premji's individual donations falling by ₹9,000 crore (due to share buyback in 2021 that benefited his foundations directly). Philanthropic giving by HNIs and affluent grew 11% to ₹25,300 crore. The report says family philanthropy is significant not only due to funds it is making available today but for the transformational role it can play. "Now-gen givers, professionals and entrepreneurs with first-generation wealth, and inter-generational givers, which include current generation of traditional family philanthropists, are focusing on under-represented causes. Over 90% of inter-gen and now-gen donors from our sample want to get involved in emerging causes such as climate change; gender, equity, diversity and inclusion (GEDI); and strengthening philanthropic infrastructure," says the report. "About 33% of inter-gen donors are investing in under-represented sectors such as GEDI, which includes mental health (Raj Mariwala, Vidhi Shanghvi) and gender equality (Roshni Nadar, Riah Forbes). Almost one in five (19%) inter-gen donors are backing emerging areas such as arts, culture, and heritage (Sanjiv Saraf, Abhishek Poddar) and sports (Radhakrishnan Sundar), and 36% are supporting livelihood enhancement and skill development (Jalaj and Vita Dani). While 31% now-gen donors are investing in ecosystem strengthening (Amit Chandra, Donald Lobo), 31% of donors from both cohorts are supporting climate action and resilience efforts (Rohini Nilekani, Nithin and Nikhil Kamath, Leena Dandekar and Aditi Kothari Desai)," it adds.

Impact Investments

In April 2023, actor Akshay Kumar and former cricketer Virender Sehwag invested in Pune-based Two Brothers Organic Farms, a company that helps Maharashtra's marginalised farmers shift to organic farming and get market access and fair price. In May, actor Shilpa Shetty Kundra invested in KisanKonnect, a Mumbai-based farmer producer company that sources fresh fruits and vegetables from 500-plus farms and delivers at doorsteps. In June, Ekta Kapoor and others invested $1.8 million in Bengaluru-based The Yarn Bazaar, a virtual marketplace that helps small/medium spinners and yarn makers expand reach. What is common to all three companies is their community touch.

Dozens of people, funds and family offices want to invest in such ventures. IIC counted 20 such investments in April, 22 in May and 29 in June. Disclosed investments added up to $154 million in April, $74 million in May and $131 million in June. Out of all investments in first three months of FY24, 193 (including by Akshay Kumar-Virender Sehwag) were tagged as 'climate-tech.'

Impact funds are a relatively emerging space compared to philanthropy and CSR. However, it is catching on fast with family offices and high network individuals. But how do you define a social enterprise? "There has to be an element of social equity, or some benefit to socially underserved, but in a profitable way. These enterprises, when they grow, attract other commercial investors. Impact investments come at a very early stage," says Ramraj Pai, chief executive officer, IIC.

While philanthropy mostly supports not-for-profit models and is targeted towards the extremely poor, impact investments support for-profit models. "Impact investing looks at the low to lower middle income market where there is capacity to create a more sustainable business model that will generate more social than financial impact," says Pai.

Policy Shift

"I propose steps towards creating an electronic fund raising platform — a social stock exchange (SSE) — under the regulatory ambit of Securities And Exchange Board of India for listing social enterprises and voluntary organisations working for realisation of a social welfare objective so that they can raise capital as equity, debt or as units like mutual funds," Finance Minister Nirmala Sitharaman said while presenting Union Budget FY20.

Government made its intentions clear; it wanted more transparency and accountability in the philanthropy and social enterprise ecosystem. The first step was to scrutinise organisations that receive foreign funds. Between 2018 and 2022, Central government cancelled registration certificates issued under Foreign Contribution Regulation Act (FCRA) of 1,827 associations. It also started asking more questions before issuing FCRA licences. The next step was stringent monitoring of foreign fund flows. In 2020, it made it mandatory for FCRA-registered entities to receive foreign funds only through a single bank branch of SBI.

The changes have triggered a major churn in India's NGO and civil society sector. "Many non-profits (NGOs) depend on philanthropy and charity funds. Domestic funds are the way to go as foreign funding is getting smaller. Many international NGOs are not being permitted to be active in India and by 2020 (permission for) sub-granting (FCRA-registered NGOs providing sub-grants to grassroots NGOs) was stopped. Only a small portion of CSR funds (reach) service delivery organisations," says Mathew Cherian, board chairperson, CARE India. He says rise in CSR funding cannot bridge the gap as little money is being set aside for basic service delivery (education, health, livelihood, skilling, empowerment) in poorest areas or 135 aspirational districts. Government will have to augment resources to these regions, which can be supplemented by domestic charity, say experts.

The exchanges, however, will help for-profit social enterprises get more money. IIC's Pai says this means institutional recognition to the process of impact investment. "Government regulation legitimises it. A lot of institutional investors like large public sector players and government funds will prefer to invest in an industry where rule book is clear." While BSE and NSE have set up social stock exchange segments, the regulator will have to do a lot of work before these can become fully functional and enable registered social enterprises to tap into a wider pool of investors and donors.

The Conclusion

Private philanthropy could be a fraction of the overall social expenditure but its importance is rising due to multiple reasons. First, there is a need to focus on areas where traditional funding, including foreign charity donations, is shrinking. Also, the number of sectors that need growth funds — including sustainable agriculture, new energy and climate action — is increasing. A mix of philanthropy, impact funding and commercial investments are making a lot of difference in scaling up of socially impactful business models. India's rich and affluent are also keen to invest in sustainable social enterprises. Globally, too, there is interest in buying equity in sustainable projects. Finally, a lot of effort is needed to fill the gap in social sector funding in India.

Government's role in facilitating fund inflows is critical. Naina Subberwal Batra, CEO of Singapore-based Asian Venture Philanthropy Network (AVPN), a funders' network that has close to 100 Indians as members, says tweaks in CSR rules can make its implementation better. "CSR is very project-focused. This makes it difficult for the non-profit sector to absorb large amounts as they can’t spend on anything other than that project," she says. AVPN is looking at ways to deploy capital better.

Srinivas Ramanujam, CEO of Villgro, one of India's pioneering incubators of social enterprises, say there is need to focus on incubator start-ups. "Out of ₹25,000 crore-plus CSR funding, only ₹220 crore went to incubator start-ups. So, headline number looks fabulous, but 99% funds are either going to their own foundations or existing programmes. How many of them are helping innovation? It is not even a fraction," he says. He considers Villgro a core enabler of the Bharat 2.0 phase by facilitating transformational solutions across rural sectors.

IIC's Pai says even traditional capital can be nudged toward impact investments if government wants to. "Let's say I am a CSR funder. It is not clear whether I can invest in an instrument on social stock exchange. Is it CSR approved? It's not clear. If I am a charity and invest in this, is this okay from a tax perspective? That's not very clear. If I invest today in any company, I get 80G benefit. Will I get it here? Not clear. At the very least, government should bring clarity. But it's a chicken and egg situation. Someone may say that the idea (of social stock exchange) is not to take money out of traditional investors but to attract new money," he says.

It is time for government to try new investment and funding models in social and developmental sectors. The idea of social stock exchanges has been an important policy signal towards institutionalising philanthropy in India. It could unleash funding from large corporates and other philanth- ropists or family offices. It may also, over a period of time, attract retail funding. India's social service implementation ecosystem will need to align with the changes happening on the funding front — the sooner, the better.