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 and show little interest in fully funding critical nonprogram-related expenses. 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
- 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 organization 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.
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
- Close the indirect-cost funding gap
- Invest in organizational development
- Build financial reserves
Read the full article about building resilient NGOs in India by Pritha Venkatachalam, Donald Yeh, Shashank Rastogi, Anushka Siddiqui, Umang Manchanda, Kanika Gupta, and Roger Thompson at The Bridgespan Group.