Grantmaking practices in India too often undercut the very goal that motivates funders’ generosity: impact that improves the lives of individuals and communities. Most funders equate impact with programs, which is where they concentrate their grantmaking. Many show little interest in fully funding essential nonprogram expenses out of concern that such costs detract from their program-focused impact goals.

In fact, the opposite is true. Nonprogram expenses cover essential administrative or support functions across programs, organization development expenses such as strategic planning and leadership training, and reserve funds. Indeed, NGOs with reserves weathered the COVID-19 pandemic far better than those with little or no financial cushion when their funding slowed or disappeared.

The problem, as recently described in a report by The Bridgespan Group, is that the failure to fund these expenses stunts impact by leaving NGOs without the organizational or financial strength to grow or sustain impact, rendering the sector perpetually subscale. Our research—drawing on a survey of 388 NGOs broadly representative of the sector in India, as well as a separate financial analysis of 40 leading and relatively well-funded NGOs—mirrors similar studies in the United States. Indirect costs in India averaged 19 percent of total NGO costs, but 68 percent of grants that the 40 NGOs received over the past three years allocated less than 10 percent for indirect costs.

Only 18 percent of the 388 survey respondents said they invest adequately in organizational development, while 38 percent reported fewer than three months of reserves, an indicator of serious financial stress. That was prior to the COVID-19 pandemic. Just eight months into the pandemic, 54 percent reported fewer than three months of reserves. Despite their financial stress, NGOs across India rallied to support the nation’s response to the pandemic.

Read the full article about grantmaking in India by Pritha Venkatachalam, Donald Yeh, and Shashank Rastogi at Stanford Social Innovation Review.