In the year 2002, a Public Interest Litigation (PIL) had accused Hind Swaraj Trust of Anna Hazare of misutilisation of a grant of Rs 1 lac given to it by the Government of India. The PIL had alleged that the Council for Advancement of People’s Action and Rural Technology (CAPART) of the Ministry of Rural Development had given a grant of Rs 1 lakh to Anna Hazare-led Hind Swaraj Trust (HST) for watershed development in three Maharashtra villages in 1999-2001, but more than 90% of the money was spent on honoraria, travelling, printing and stationery.

The Supreme court seized the opportunity and ordered a thorough counting of NGOs in the country, and asked to share how many of them were filing mandatory annual income-expenditure details. CBI was entrusted with the task.

In 2015 when the numbers came many were startled. We now know that over 31 Lakh NGOs exist in the country while only 10% of them file their balance sheet. In other words, there is no clue how the rest 90% spend their money.

But with our organisational experience of 35 years into NGO capacity building, I can claim with a certain confidence that the reason behind these numbers has less to do with any financial misdemeanour and more to do with the lack of documentation culture in the sector.

The poor habit of record keeping and documentation in NGOs is also partially responsible for the credibility crisis it is currently going through. A closer look at the current funding sources and their annual contribution is also imperative to understand why the sector is so perennially funding-starved.

It is a known fact that since 2014 Modi government has taken a slew of measures to reform the NGO/Social sector. It began by promoting the use of DARPAN website and a centralised platform for the release of funds and expense-reporting. This was done to avoid duplication of funding by departments for the same project. However, to date, only about 74,000 NGOs have enrolled on the website.

As far as government funding to NGOs is concerned, Rs 15,329.16 crore was given during 2016-17. However, the number of NGOs which got this funding is only 23,176. Continuing with the funding consolidation and cleanup spree government also disbanded CAPART and merged it with National Institute of Rural Development and Panchayati Raj (NIRD-PR) at the beginning of this year.

It is also well known that apart from the government funding, NGOs also receive funding from private individuals as a charity, Corporate funding in the form of Corporate Social Responsibility (CSR) or from foreign sources through the FCRA.

As far as Private funding is concerned with a report from the Bain & Co. suggests that total fund from Private philanthropists was Rs 43,000 crore for the year 2017-18. The figure is seeing a steady increase every year. The contribution through CSR funding was Rs 13,000 crore for the same period and that too is growing steadily each year. The amounts, however, are meagre compared to countries like US, Britain. If funding available per NGO is calculated the situation looks grim.

Funding from abroad for NGOs is also an established and well-known fact. However, over the last 5 years, there has been a steady drop in the same. Between 2014-2019 around 20,000 NGOs lost their FCRA licence. Most of these were dubious advocacy organisations receiving large funds from abroad. The notable ones among these were Ford Foundation, Amnesty International etc.

While in 2010-11 around 14,000 crores of foreign funding came to India which largely came for 22,000 NGOs, the amount last year plunged to only 40% of this figure. Hence, Funding is one of the key challenge NGOs and VOs in India face today.

It is perhaps this reason the sector rejoiced at the budget announcement when Finance Minister Smt Nirmala Sitharaman announced setting up of a Social Stock Exchange to allow social organisations to raise capital. She mentioned that an Electronic Fund-raising Platform (EFP) would be created for social and voluntary organisations to raise capital, debt and mutual funds.

While the idea of a Social Stock Exchange is not a new one, for a country with double the number of NGOs than the number of schools it has, a bold step like this one is sure to create both amazement and excitement.

The roots of this idea date back to the year 2000 when the United Nations formed a pact called ‘United Nations Global Compact’ in order to encourage businesses worldwide to adopt sustainable and socially responsible policies and to report on their implementation. Out of its many initiatives, the UN Global Compact also promoted the Sustainable Stock Exchanges (SSE) initiative.

In 2002, Celso Grecco, a Brazilian created the first social stock exchange of the world for the Brazilian stock exchange. Launched in 2003, the model became a case study at the United Nations and a model recommended to all stock exchanges by Kofi Annan, former UN Secretary-General. Social Stock Exchanges currently exist in the UK, Canada, Singapore, South Africa, Brazil, Jamaica and Kenya.

In India the benefit of starting the social stock exchange could be threefold:

a) to help social and voluntary organisations to find investors. The electronic fundraising platform will list social enterprises in the same way as public listed companies under SEBI.

b) Processes and documentation involved in the listing will bring transparency in the sector which in turn would improve the sector’s credibility quotient thereby attracting more investors, private as well as corporate. Once investors join, rating agencies like CRISIL and ICRA would also find value in entering the space by opening their NGO desks thereby leading to more transparency and more credibility for the sector.

c) lack of organised data sharing mechanisms and coordination often has it that multiple NGOs in a region try to solve the same problem through separate ways thereby creating either duplication or redundancy in the process. A senior NITI Aayog official had once openly shared during an NGO roundtable that the sector players are working so randomly in various directions that many times the total work done adds up to zero. A step like SSE would bring in openness and thereby consolidation of efforts.

However, many questions remain to be answered and many challenges left to be addressed.

Firstly, India had seen a similar debate when SME exchange was announced in the year 2011. Whether the experiment has been a success or failure is still debatable, or it could be a little early to judge, however it offers many learnings for the government.

Secondly, a number of our social and voluntary organisations are registered either as trusts or societies and very few as section 8 companies. Hence the government will have to introduce some mechanism to convert existing trusts and societies to the share-based non-profit Section 8 companies. Going by the expense a company incurs during the listing process for NSE or BSE, if the government doesn’t subsidise the cost in SSE, it will not be possible for many NGOs to list on their own. Hence the government will not only have to subsidise many expenses but also incentivise funding agencies and rating agencies to participate.

A nation with 30 lakh plus NGOs don’t have even a single NGO close to the top 100 global not-for-profit organisations. The days of ignominy may soon be over and the path to glory for the Indian social sector could be through this important step.