The news of food delivery agents arriving at the Jantar Mantar protest site with meals ordered by unknown donors has been the subject of heated discussions on the whys and whereofs. What is undeniable is that this act of giving is in keeping with the living charitable traditions of India. According to a recent study by Ashoka University’s Centre for Social Impact and Philanthropy, Indian households contribute around Rs 540 billion every year to charitable causes in cash, kind and services. While a large share of this goes towards religious institutions, giving to the needy is a valued practice, too.
What motivates this among middle income households has more to do with tradition and custom, rather than recognition or tax benefits. High net-worth individuals, through family trusts, are known to fund endowments and grants to educational institutions and hospitals. Established trusts also make thematic grants that cover a wide spectrum of causes from education of the girl child to water conservation and sustainability initiatives.
India is the first country to bring in a law to mandate corporate social responsibility (CSR) under Section 135 of the Companies Act. This requires a minimum spend of 2 percent of the three-year average net profits of a company on social welfare activities. It also prescribes the use of such funds for permitted activities and impact assessment studies. Many corporates have integrated their CSR activities seamlessly into their branding strategy to enhance customer trust.
But one issue that persists is the limited access of deserving non-profits to CSR funds. This may happen when there is a lack of alignment between corporates with CSR budgets and projects for which funds are being sought.
Therefore, even organisations doing authentic work often struggle to establish relationships with possible corporate donors when they have not had any prior engagement. In the non-profit funding ecosystem, networking is often the starting point of building trust. So its absence results in a lack of inclusion and asymmetries in fund allocation. Further, as CSR mandates a prescribed minimum limit for funding, many corporates with potential for greater funding restrict it to the mandatory outgo, adopting a tick-box approach.
The concept of the Social Stock Exchange, introduced in the finance minister’s 2019 budget speech, aims to bridge this gap by enabling non-profits who have demonstrated credentials of accountability to raise capital in a regulated bourse. The SSE— listed on BSE and NSE under the Securities and Exchange Board’s oversight—envisages creating specific financial instruments for non-profits. Social enterprises and voluntary organisations that list in the SSE can use the platform to connect with investors and donors with increased transparency.
The non-profits are required to furnish documentation and undergo due diligence checks for onboarding on the platform. Initially, 17 areas of impact have been identified. The target population of beneficiaries would be the underprivileged segment of the population where development performance has been below benchmarks. Raising funds in the SSE could thus make a substantial difference by providing necessary synergies in areas of key impact.
The introduction of new categories of financial instruments, mainly the zero-coupon zero-principal (ZCZP) bonds allows non-profits to raise capital from investors for specific projects. In order to enable retail investors to participate, the threshold investment is kept as low as Rs 1,000. There is also scope for investment in registered non-profits through mutual fund-like units. The SSE platform also allows for-profit enterprises to raise funds in the form of equity.
The introduction of mandatory annual audit of social impact enables the monitoring and verification of project milestones. A new category of professionals, certified social auditors, doing the impact assessment would ensure maintenance of qualitative standards and bring in a much-needed professional rigour to the social sector. The standardisation of metrics would enable measurement of tangible benefits, analyse implementation and fund use, and create a framework for studying effective deployment. This would also demonstrate public accountability and transparency. The availability of tax benefits and exemption from securities transaction tax for investment in ZCZP and other instruments in the SSE is a step forward to incentivise participation.
A recent amendment to Schedule VII of the Companies Act allows up to 10 percent of CSR funds to be invested in ZCZP bonds. The requirement to conduct an impact study to the extent of such investment is no longer required. This would serve to broaden the market and allow listed non-profits greater access to funds. The SSE has thus created an infrastructure to catalyse development goals. What is now required is for more non-profits to adhere to credible reporting relying on verifiable data and adequate governance structures to participate in this market.
In the Brihadaranyaka Upanishad, there is a story of thunder that speaks in a single, powerful syllable—da. This has been interpreted variously as datta (giving), damyata (restraint) and dayadvam (compassion), meant for humans, gods and demons, respectively. The exhortation to humans is to cultivate the art of giving. This affirms the intrinsic interdependence at the core of our lives. We are at an inflection point where the narratives, processes and matrices that facilitate giving can play a vital role in development goals.
The challenge is to transform generosity from being random acts to becoming a tool to build a resilient society, where there is greater participation in development across various strata of society. The SSE has taken meaningful steps to fine-tune the art of giving, bridging the gap between non-profits and donors for deployment of capital. It can scale up with the active involvement of stakeholders.
Read all columns by Geetha Ravichandran
Geetha Ravichandran
Former bureaucrat and author of The Spell of the Rain Tree
