Predatory Lending: Is it worth your interest?

Predatory Lending: Is it worth your interest?

– By Aishwarya Heda

What would happen in a world where the interest rate on borrowings is 60% per annum? Indebtedness, daily struggles, failing businesses, anxiety; this is the reality for millions of Indian poor.

Lata works in my house and a few months ago she borrowed a sum of INR 1 lakh for her son’s surgery from a local moneylender, at an interest rate of INR 60,000 per annum. Contrast this with the average lending rate in the formal banking sector which ranges from 11% to 24% per annum. “Life is good otherwise. My husband and I earn enough to support our family. However, this loan gives me anxiety. I have a feeling that I will be paying this interest for the rest of my life.” says Lata.

Sattva_Insights_PredatoryLending

Credit is necessary to ensure the dignity, shared prosperity, financial stability, and secured well-being of people. It provides access to education and healthcare, a means of undertaking business, and fulfils emergency needs. However, predatory lending often inhibits the growth and cash flows of the poor, strangling them with a lifetime of debt. A seven-year-long longitudinal impact study commissioned by SIDBI discovered that the poor – without access to formal sector loans – pay an interest rate of 60% per annum or more to moneylenders on an average (EDA, 2004). In spite of this huge interest payout, nearly 20% of the loans in rural India and 16% of the loans in urban India are sourced from moneylenders alone (IHDS-II). In our country, where finance is seen as the backbone of economic growth and a means of elevating residents out of poverty, it has become imperative to eliminate the widespread influence of informal credit.

This begs the question: why do a majority of the poor still depend on the informal sector? After all, there has been tremendous growth in the microfinance sector and the government has taken multiple steps like the implementation of many credit-linked poverty alleviation programmes and a mandatory system of priority-sector-lending to promote formal sector lending to the poor. The major possible causes of this problem include a combination of people and systemic issues. Lack of education and knowledge, difficulty in accessing formal sources of credit, absence of collateral, and possible inhibition to enter bank buildings could be some of the people or sociological issues. Additionally, it is much easier to obtain loans for purposes such as marriage and litigation from informal sources. Systemic factors of the formal sector include lengthy paperwork, fixed repayment schedule, which does not meet the needs of the poor with irregular income, and unwillingness to extend credit to the poor due to the uncertainty of repayment capacity and lack of data to ascertain their credit ratings. Informal sources, on the other hand, do not require timely repayment, do not have complicated rules governing the granting of loans and are willing to lend freely without collateral. This makes them a preferred source of credit.

In order to affect a transformative change in the credit availability from formal sources to the poor, a multi-layered approach needs to be taken. It should involve changing the mindsets of all the involved stakeholders including the poor, formal sectors banks and microfinance institutions. For instance, a study funded by UK Aid showed that flexibility in microfinance contracts led to higher repayment rates. The widespread use of Aadhar card and linked PAN cards has eased the process of opening of bank accounts, filing ITRs, availing SIM cards and performing e-KYC. These technology-linked systems along with the digital revolution seen in India can be leveraged to collect data to reasonably gauge the risk of non-repayment from every individual. Microfinance institutions can optimise these technologies to make finance readily available without compromising on due diligence. The digital revolution can also be harnessed to educate the masses regarding the benefits of formal finance.

Ultimately, a nation’s advancement is measured by how rapidly its poor advances out of poverty, and this is especially true for a country like India with 364 million poor (2018 MPI). A steady and flexible source of formal credit could be a key to raise the status of the Indian poor. It will provide them with an opportunity to start new enterprising activities and will bring about positive changes in their livelihood patterns by inculcating in them the habit to save, reducing their dependence on predatory lending, and fundamentally improving their standard of living. This could be the story of millions of other poor people like Lata, to whom we as a nation have a responsibility to empower.
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Aishwarya Heda is part of our Transformation Advisory team and works from our Bangalore office. She is a graduate from Shri Ram College of Commerce, Delhi. Before Sattva she has interned at a financing firm in Mumbai followed by a 2-year stint as an Investment Banking Analyst at Goldman Sachs.

Read about Sattva’s work in demonstrating how financial empowerment through digital financial inclusion can make a social impact here.

Sector-wise CSR Analysis

BACKGROUND – CORPORATE SOCIAL RESPONSIBILITY

In 2014, India became the first country in the world to mandate CSR spend through legislative action. The legal mandate on CSR applies to companies that have:

a.Net worth of INR 500 Crore or more, OR
b.Annual turnover of INR 1000 Crore or more, OR
c.Net profit of INR 5 Crore or more.

Companies thus coming under the CSR mandate, have to spend at least 2% of their average net profits of the preceding three years on social impact programmes in every financial year.

In the first 3 years of implementation of this law, over 29000 companies have come under the CSR ambit. Cumulatively they have spent over INR 41,396 Crore over a period of 3 years.

In this report, we have analysed the cumulative 3-year sector-wise CSR spend by the entire set of companies (total of 29190), using the data made available by the Ministry of Corporate Affairs as of January 2019.

SECTOR-WISE TRENDS

Sattva_Sector-wiseCSRData
Sattva_Sector-wiseCSRData

Education is the most popular choice of sector for CSR projects receiving 25% of the total CSR -more than 10,000 Crore -between 2014-2017. In fact education alone received as much funding as the next 2 sectors –healthcare and rural development –combined!

The top 3 sectors comprising of education, healthcare and rural development together received 50% of the total CSR fund. Remaining 50% is spread over 25 different sectors.

(Please note that the data for FY 2016-17 is not fully updated on MCA portal (as of Jan ‘19). An updated version of this report will be available on www.sattva.co.in and www.IndiaDataInsights.com in June 2019.)

You can find our data on the sector-wise trends here.

Part 1 of our blog, on CSR Compliance, in this series is available here.

Part 2 of our blog, on Region-wise CSR analysis, in this series is available here.

Part 3 of our blog, on Industry-wise CSR analysis, in this series is available here.

To explore the nuances of CSR – compliance, analysis and more – talk to us today at impact@sattva.co.in

Industry-wise CSR Analysis

BACKGROUND – CORPORATE SOCIAL RESPONSIBILITY

In 2014, India became the first country in the world to mandate CSR spend through legislative action. The legal mandate on CSR applies to companies that have:

a.Net worth of INR 500 Crore or more, OR
b.Annual turnover of INR 1000 Crore or more, OR
c.Net profit of INR 5 Crore or more.

Companies thus coming under the CSR mandate, have to spend at least 2% of their average net profits of the preceding three years on social impact programmes in every financial year.

In the first 3 years of implementation of this law, over 29000 companies have come under the CSR ambit. Cumulatively they have spent over INR 41,396 Crore over a period of 3 years.

In this report, we have analysed the cumulative 3-year industry-wise CSR spend by the entire set of companies (total of 29190), using the data made available by the Ministry of Corporate Affairs as of January 2019.

INDUSTRY-WISE TRENDS

So who are the big spenders and in which sectors and which regions?

Two industries – BFSI and IT/ITES – together contributed 30% (INR 12,658 Crore) to corporate India’s total CSR fund in 3 years (2014-17) and education is the most popular sector overall.

On the whole, companies spend the most on CSR projects that are pan-India in scope. The next big recipient of CSR money overall is the Western region.

All figures in the following charts are cumulative spend over 3 years, unless otherwise specified.

Sattva_CSR_Industry-wiseTrends
Sattva_CSR_Industry-wiseTrends

(Please note that the data for FY 2016-17 is not fully updated on MCA portal (as of Jan ‘19). An updated version of this report will be available on www.sattva.co.in and www.IndiaDataInsights.com in June 2019.)

You can find our data on the Industry-wise trends here.

Part 1 of our blog, on CSR Compliance, in this series is available here.

Part 2 of our blog, on Region-wise CSR analysis, in this series is available here.

To explore the nuances of CSR – compliance, analysis and more – talk to us today at impact@sattva.co.in

Region-wise CSR analysis – Feb 2019

CORPORATE SOCIAL RESPONSIBILITY

In 2014, India became the first country in the world to mandate CSR spend through legislative action. The legal mandate on CSR applies to companies that have:

a.Net worth of INR 500 Crore or more, OR
b.Annual turnover of INR 1000 Crore or more, OR
c.Net profit of INR 5 Crore or more.

Companies thus coming under the CSR mandate, have to spend at least 2% of their average net profits of the preceding three years on social impact programmes in every financial year.

In the first 3 years of implementation of this law, over 29000 companies have come under the CSR ambit. Cumulatively they have spent over INR 41,396 Crore over a period of 3 years.

In this report, we have analysed the cumulative 3-year CSR spend by the entire set of companies (total of 29190) on the regional distribution of CSR using the data made available by the Ministry of Corporate Affairs as of January 2019.

Sattva_Region-wiseCSRAnalysis
Sattva_Region-wiseCSRAnalysis

So, where is India’s CSR money going?

As per the the CSR law provision :
“the company needs to give preference to the local area and areas around where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.”

How does it affect the CSR reach into areas that need the development capital the most?

(Please note that the data for FY 2016-17 is not fully updated on MCA portal (as of Jan ‘19). An updated version of this report will be available on www.sattva.co.in and www.IndiaDataInsights.com in June 2019.)

You can find our data on the Region-wise CSR analysis here.

Part 1 of our blog, on CSR Compliance, in this series is available here.

To explore the nuances of CSR – compliance, analysis and more – talk to us today at impact@sattva.co.in

CSR Compliance

CORPORATE SOCIAL RESPONSIBILITY

In 2014, India became the first country in the world to mandate CSR spend through legislative action. The legal mandate on CSR applies to companies that have :

  • Net worth of INR 500 Crore or more, OR
  • Annual turnover of INR 1000 Crore or more, OR
  • Net profit of INR 5 Crore or more.
  • Companies thus coming under the CSR mandate, have to spend at least 2% of their average net profits of the preceding three years on social impact programmes in every financial year.

    The law also expects the companies to :
    a. Have a CSR Policy in place
    b. Spend the prescribed 2% amount
    c. Be transparent in reporting details of CSR – the activities they undertook and where, and their mode of implementation.

    In the first 3 years of implementation of this law, over 29000 companies have come under the CSR ambit.

    CSR budget range being a good indicator of the company size, we are reporting compliance for each budget range (as categorised by MCA) separately. The graphs on the following pages present CSR compliance data year-on-year.

    Sattva_CSRCompliance
    Sattva_CSRCompliance

    In this report, we have analysed the entire set of companies (total of 29190) on their CSR compliance using the data made available by the Ministry of Corporate Affairs as of January 2019. Please note that the data for FY 2016-17 is not fully updated on MCA portal (as of Jan ‘19), and hence the compliance scores for 2016-17 may go up once the data is complete. The updated version of this report will be available on www.sattva.co.in and www.IndiaDataInsights.com in June 2019.

    Following five parameters have been used to assess compliance :
    1. Does the company have a CSR policy?
    2. Did the company spend the prescribed CSR amount?
    3. Did the company report the causes it supported through CSR?
    4. Did the company report where its CSR activities were conducted?
    5. Did the company report the mode of implementation of its CSR projects?

    On CSR compliance, would you like to know how your company is doing?

    Here is a tool to calculate the CSR Compliance Score for your company :

    CSR Compliance Score Card

    All graphs in this report are available for free download and reuse (with attribution) here :

    CSR Compliance Report (2014-17)

    To achieve 100% on not just compliance, but also on effectiveness of your programmes and real impact, talk to us today at impact@sattva.co.in

    The Government is serious about CSR Compliance – Are you?

    Introduction

    Corporate Social Responsibility (CSR) suggests that the responsibility of the for-profits operating within society, is to also contribute towards its economic, social and environmental development and well-being. The core objective of enforcing a CSR mandate is that businesses cannot succeed in isolation, especially when society at large fails to prosper. The Companies Act, 2013 is therefore, a landmark legislation that made India the first country to mandate and quantify CSR expenditure. This move was an attempt by the government to partner with business houses on the national development agenda.

    The Story So Far

    It has been close to 5 years since the government mandated that corporates with :
    ● a net worth of INR 500 cr. or more
    ● or a turnover of INR 1000 cr. or more
    ● or a net profit of INR 5 cr. or more

    in a given financial year, must spend 2 percent (to be calculated as per Section 198 of the Act) of their average net profits on socially relevant projects as defined in Schedule VII of The Companies Act.

    However, even today many corporates eligible for CSR do not contribute to development projects and therefore run a risk of being sent notices for non-compliance and non-conformance of CSR norms.

    While a large chunk of eligible corporates have adopted the mandate as an opportunity to further their corporate citizenship and not just as a tick box activity, there is still a large share of eligible companies who are yet to deploy their CSR funds.

    SocialDisruptors

    SocialDisruptors

    Three years after the law came into existence, that is till 2016-17 – close to half of 19,933 eligible companies have not spent any money as part of their CSR obligations (~9468 companies) and as many as 15,422 companies spent less than the prescribed CSR amount during the same period. In addition to the above citations, there are examples of companies as well who have spent upwards of four times of their prescribed CSR budget in the financial year.

    However, as we see non-compliance has reduced year-on-year. A recent survey published by NGOBOX (
    http://ngobox.org/full-news_CSR-Outlook-Report-by-NGOBOX-analyses-top-359-companies-NGOBOX_22359) revealed interesting insights on CSR compliance among India’s biggest 359 companies which together account for 3/4th of the total CSR spend:

    ● CSR compliance among these companies stood at 93% for the year 2017-18 up 2% points compared to previous year.
    ● Metal, mining and mineral (138%) followed by Oil, Drilling, Lubricants and petrochemicals (104%) sectors emerged as the highest CSR compliant industries followed closely by Auto and Auto ancillaries.

    Government Initiatives/ Steps Towards Compliance

    Things are looking up. The Ministry of Corporate Affairs has also stepped up its effort to encourage corporates to comply with the CSR provisions by setting up:

    ● National CSR Data Portal –The National Corporate Social Responsibility Data Portal is an initiative by the Ministry of Corporate Affairs, Government of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by the companies registered with it (https://csr.gov.in)

    ● National CSR award – The Ministry of Corporate Affairs has instituted National CSR Award (NCSRA) to recognise CSR for inclusive growth and sustainable development. This Award seeks to recognise the companies that have made a transformative impact on society.

    Along with the initiatives mentioned above, the ministry has also taken a few steps to increase compliance by:

    ● Reconstitution of a high-level committee on Corporate Social Responsibility 2018 (HLC-2018) under the Chairmanship of Secretary, Ministry of Corporate Affairs (MCA) to review the existing framework and guide and formulate the roadmap for a coherent policy on Corporate Social Responsibility.

    ● Centralised Scrutiny and Prosecution Mechanism (CSPM) to promote enforcement of CSR provisions. CSPM has been tasked to start with examination of records of the top 1,000 companies mandated to spend on CSR. The CSPM team of inspectors are issuing show cause notices and prosecution proceedings against non-compliant companies.

    In the latest round, prosecution proceedings against 284 companies and show cause notices against 5,382 companies have already been issued.

    In view of these efforts, it is clear that the government is serious about bringing rigour and strong scrutiny to ensure the CSR law is strictly followed in the near future.

    Current challenges and what Corporate India Can Do

    Corporates often find that they have unutilised funds in the last quarter of the financial year. This could be because of several reasons:

    ● long cycles in identification of impactful projects or/and credible partners
    ● uncertainty on the exact figure of what the total CSR budget may be due to the change in company profit
    ● ambiguity in the legal requirements
    ● difficulties in developing the strategic vision in a multi stake-holder environment
    ● challenges in planning and executing operations through the year

    Some typical avenues that corporate India chooses to disburse its CSR funds are:

    ● Contribution to the Prime Minister’s National Relief Fund
    ● Contribution to CSOs working in the chosen area of focus by the corporate
    ● Contribution to Corporate foundations setup to undertake CSR activities exclusively (Own or External)
    ● Contribution to multi stakeholder platforms founded to address areas of concern.

    Although last minute, it would be imperative for corporates to consider some key points while making their social investment decisions in order to move from a compliance-led CSR function to a more strategic CSR function:

    ● Recognising CSR as a strategic corporate function : CSR law is here to stay. Recognising the strategic and legal significance of CSR and incorporating it into long-term corporate strategy is imperative.
    ● CSR Vision : Alignment and long term commitment to company’s CSR anchor ( focus area/audience/geography ) is key in creating long lasting impact and corporate legacy.
    ● Measure to improve, not prove: A robust monitoring and evaluation mechanism acts well as the steering wheel required to continuously improve CSR interventions and make timely course corrections.
    ● Outcome first: An outcome led approach as against an input led approach goes a long way in establishing the social impact goals the corporate wants to achieve.

    There is a need to fund projects which will not only impact the last mile recipient of the intervention but also bring the culture of empathy and service within the organisation.

    Sattva has been working with various corporate clients to help them define their social impact goals and maximise the return on social investment. Our focus is to solve critical problems and find scalable solutions. Several corporates have been a partner to many such collaborations where effective CSR programmes have strategically aligned with business and have provided meaningful solutions to social issues.

    ● To read more about our work with CSR, check:https://bit.ly/2G9g2UZ
    ● Talk to us: impact@sattva.co.in

    From a cushy corporate job to the development sector

    I spent over 16 years driving operational excellence to derive value and efficiency for several corporates. I was good at it and I enjoyed every bit of it. Therefore, my transition to the development space was initially a trial with no long-term commitment.

    It may not be an easy transition for everyone either. Corporate life provides some financial comforts. The larger the organisation you leave behind, the more startling is the perceived difference in the sector, and so, it takes time to acclimatise. The basic amenities of large corporations like air-conditioned offices, travelling in comfort, food and beverages in abundance and sometimes just the option of moving to another role in the same organization gives comfort. Unlike many others, I consider myself fortunate that I could quit my job even though there was a reduced pay cheque and I could take the plunge without worrying.

    Sattva_ShruteeGangulyBlog
    “There is no way that a handful of us can comfortably solve the issues that confront us, given their enormity and complex nature.” Credits: Shrutee Ganguly

    From the outside it seemed like a space that was unorganised and largely depressing, mainly because all the success stories somehow do not reach outside a selected few. Never did I think that my values, skills, aspirations or even courage, to see reality upfront will align to the needs of the sector. Until then, participating in employee volunteering activities, making donations, frequent visits to old age homes or rehab centres, and even making myself heard by counting the failures of our social system during lunch table conversations, was the closest I had done to make a difference.

    Giving back to society originates from the most inherent human need to nurture positive thoughts and recognise self-worth. It is this journey to self-realisation, feeling worthwhile, experiencing gratitude and leaving a legacy behind, that attracts many people.

    But I wanted to go beyond the donation of money, material or labour. I was interested in efforts that have scope to scale and sustain.

    Tackling the challenges head-on and doing something about it, is the DNA of this sector. Problem solving is required extensively to ensure every challenge, small and big, is quickly dealt with. My new role gave me an opportunity to use my skills of not just problem-solving, but also building systems and processes where data played a role. In addition, this sector has respect for honest efforts. I had the privilege here to work on many functions which were first in many ways like working with partners and helping them grow by building their capability. This sector has so many people with intent, yet corporate brings an organized and systematic approach to the transformation. Together the results are worth taking a notice.

    Having said all that, what this sector does not prepare you initially is the magnitude of the problems that we may encounter. There is no way that a handful of us can comfortably solve the issues that confront us, given their enormity and complex nature. So, working together with same goal at various levels of our socio-economic classification, is our hope to bring collective impact on the ground.

    Corporate experience is a definite plus. The tools and techniques which often work for making profits are tweaked to generate better social ROI. Projects selected are based on social importance along with strategic alignment to have long term impact. Change management, which is restricted to a few stakeholders in the corporate world has a much larger connotation here.

    Some of the radical work in the sector today requires the best of organisational practices, process expertise and thought leadership by the people who have been there and done that.

    The best results are delivered by people who have the choice to do something else, but choose what is important – no money and no designations can alter their grit. They are achievers and have chosen to follow their life’s calling. During my transition, I have met many such incredible people who have largely influenced my thinking today and will shape our tomorrow.

    India is maturing as a country, where the need is to balance modern practices with old traditions. As the saying goes, deeper the roots, more difficult it is to shake the tree. Often there are moments of uncertainty, as there is no quick success. So, what really drives us? And my answer to this is simple. Here we are not in the business of selling hope, but hope is what drives our business. In other words, the only driver is to create impact and make a change. The mind shift becomes more real when the ‘I’ becomes ‘we’ and ‘them’ becomes ‘us.

    I know I am here for my own selfish reasons. Where else will I get to meet amazing people, witness stories of perseverance, learn from real life experiences, apply skills to solve challenges and to top it all rebuild my faith that the world is getting better.

    I think I can safely say that I am here to stay.

    This blog was previously published in Qrius.

    Making a case for Sector Disruptors

    At Sattva, we have always believed that in order to end poverty, it is important to strengthen the ability of social organisations to create impact. And as part of our work today, we engage deeply with a wide range of organisations – from some of the largest non-profits in the country to portfolios of young and nascent organisations. To ensure that we double up on this commitment in the future, we have set up a separate team within Sattva this year that will exclusively work large scale non-profits to enable them to create transformational impact over a million people.

    SocialDisruptors

    I say this to highlight my bias for scale and our commitment towards enabling non-profits towards achieving scale. All along I recognised that scale was an inadequate measure of success since it might not capture the overall impact an organisation has created. I always add depth of impact, institutional sustainability and impact on the ecosystem as being equally important as well. However, the north star to frame the conversation has always been scale. Over the past one year, having worked with some of the largest non-profits in the country and inspiring leaders, I seek to frame the north star differently. The north star metric is the number of sector disruptors that we have been able to enable.

    I want to use this post to structure my thoughts on –

    -Why sector disruptors are critical over scaled organisations, for the social impact ecosystem

    -Why there is a strong case for working with large non-profits of today to transform them into sector disruptors and not only invest in the new pipeline.

    Why Sector disruptors over Scale

    I have been fortunate to work with large organisations of various “archetypes” (topic for another post) over the last few years. While it has been immensely inspiring and a great learning, following are painful trends that are all too common today –

    -Most large non-profits have scaled in the country today by codifying their interventions into a “Least Common Denominator” (LCD) model which can be scaled everywhere but loses all its original nuance to create meaningful impact on the ground. Hence, scale is actually achieved at the cost of impact.

    -Much like IBM, no one has ever been fired in a CSR team for having funded a large non-profit. Hence the LCD model gets easily replicated across the country creating a closed loop of promoting scalable, low impact models on the ground. This usually means that the entire organisation is structured for effective operations at scale than innovation.

    -Large organisations suffer from lack of “oxygen” (quality leadership talent, funding for organisational growth, proven systems). While that is true, one realises that the larger problem are not the externalities but the diffusion of vision internally. Most large organisations are not inspiring places for people to create change and hence are unable to attract talent or bend the market. This usually results in the CEO of the organisation spending 80% of their time on internal issues (at the cost of their health and wellbeing, most times) and 20% on the next frontier of impact and innovation for the organisation.

    -As this happens, most avant-garde funders looking for innovation lose faith in large organisations and look for young and upcoming organisations to break this mould. Once funded, the young game changers continue to look for scale (since that is the norm) and end up in the same place as the guard of the past. In other words, we are pouring more water in the same leaking bucket.

    -Another side effect of the scale focus is that nascent sectors like Property Rights where there is lack of breakthroughs, not many organisations have achieved meaningful scale. Therefore, most organisations working in these sectors don’t find funding or the attention of the funders.

    Which is not to say, scale and impact are mutually exclusive. I am working with a few of them on a daily basis and two defining traits of such leaders who are able to marry impact and scale stand out – The unrelenting commitment to disrupt the sector and the market acumen to making it happen. In other words, it is not their appetite for scale – but their commitment to disruption – that helps create impact.

    Large organisations and leaders creating deep impact are defined by two leading traits – The unrelenting commitment to disrupt the sector and the market acumen to making it happen.

    Hence, setting scale as the north star metric of success for non-profit organisations in the long term is not only inadequate, it is dangerous because it results in squandering social investments in large scale programs that are designed to create incremental impact, at best. While scale is an absolutely necessary pre-condition, we need to frame success as sector disruption than scale.

    So, what are sector disruptors

    Sector disruptors change the course of how problems are solved within a sector by fundamentally changing the goal post or the lens with which problems are being looked at. That shift reframes the problem and hence the entire solution space. For instance (and this is not an exhaustive list):

    -ASER, Pratham’s Initiative, reframed the focus of Education towards learning outcomes in a manner that was more real than any other initiative.

    -Enable India moved the conversation of livelihoods for People with Disability, from being charity to actual business value by mapping the investment in PWD to the GDP of the country.

    -SEWA’s livelihood triad (MFS, IDS, LPS) defined the livelihood approach of countless organisations since then.

    -Akshayapatra’s approach to Mid-day meals through large scale infrastructure solutions with strong focus on technology and logistics redefined how such a problem can be addressed at scale while ensuring quality.

    -DRF set up LABS as a business school model for school dropouts. That template has since created a model for skill development for the entire ecosystem.

    -Childline setup 1098 as a national level helpline making phone-based access available to every child in distress across the country.

    -CRY pioneered domestic giving among NGOs both through sales of greeting cards and through its retail giving at a scale not seen before in India by an Indian NGO (so much so that many thought they were an international NGO)

    There are others including Aravind Eye Care for low cost healthcare solutions, Kaivalya Education Foundation on Middle Management leadership, Goonj on Cloth. These organisations, while not perfect, have had a huge impact on the solution space in their respective sectors.

    Another interesting observation is that sector disruption, unlike scale, is not a permanent status. Most organisations in the list above were disruptors in a certain frame in time but today are questioning their relevance within the current social landscape. It truly takes a great organisation to not only stay relevant but continue to disrupt the ecosystem. Also, sector disruption, as a metric, is constantly defined in conjunction with the external environment than in isolation as organisation metric (E.g. Budget of the NGO). Hence a sector disruptor in Property Rights would look very different given the nascency of the space to a sector disruptor in the Education today.

    Sector disruption, as a metric, is constantly defined in conjunction with the external environment than in isolation in relation to the organisation. There are no eternal disruptors. Organisations have to earn that right every time with changing times

    Making a case for working with existing organisations

    There is, rightfully, a strong focus on building the next cadre of entrepreneurs in the social impact ecosystem who have the mindset and DNA for creating large scale, meaningful impact. And my conversations with organisations such as N Core convince me of their commitment to doing it. While we invest in it, there’s an equally strong case to be made to work with existing large non-profits that have the ability and the agency to disrupt the sector more predictably than a bunch of young entrepreneurs. And here’s why –

    -Sector disruption requires an organisation to have a certain critical mass for the disruption to be felt by the ecosystem (and not be a tree falling in the forest). Large organisations bring the gravitas and scale to be able to demonstrate disruption with credibility.

    -Disruption requires scale. We have a graveyard of disruptive pilots and few at scale because what worked in pilots often are not designed for scale. Large organisations enable the scale at which ideas can be tested and demonstrated.

    -While Institutional learning is a double edged sword (and often laces all ideas with cynicism), they are immensely helpful in knowing what are essential success factors and what are sure shot blind alleys. An able leader and the right team will gain immensely from listening to this learning with discretion.

    -Finally, disruption requires funding and large non-profits bring the network and the credibility to raise the initial funding. At a time when the idea is audacious, the organisation’s track record strengthens the ability of the funder to put some money.

    Let me be clear – Not every large organisation can be a sector disruptor (well, most large organisations cannot). But scale, experience and size are strong enablers for sector disruptors to redefine the landscape – And hence there is a strong case for working with these organisations, with the right leader at the helm, to create sector disruption.

    Sattva’s own experience of working with a large organisation in the skill development space demonstrated how, when the right leader and organisation are provided the right strategy, large organisations can demonstrate disruption at a scale where the ecosystem has to notice and acknowledge.

    In my follow up post to this, I want to detail the traits that enable large organisations to be sector disruptors and share Sattva’s experiences in being part of this journey. As I mentioned earlier, this is just a conversation starter.

    Note: All original insights are thanks to meaningful conversations with Aditya Natraj, Dipesh Sutariya, Shanti Raghavan, Puja Marwaha, Hari T.N, Gayathri Vasudevan, Warren Ang, Rajat Gupta and leadership team at Child Rights and You, Kaivalya Education Foundation, CHILDLINE India Foundation and N/Core. All flaws in translating it to a post are entirely mine.

    (Originally published on LinkedIn)

     

    Where is India Inc.’s CSR money coming from?

    Continuing our analysis on region-wise CSR fund generation, investment and circulation in India (Part 1,  Part 2 and Part 3 here) –

    The visualisation below provides insight on the regional distribution of companies generating CSR funds in excess of a Crore annually :

    We have plotted average annual CSR spend for all companies spending more than a crore annually on CSR in India. Each dot on the graph represents a company. Companies are sorted region-wise and appear in the order of their year on incorporation (on X axis).

    We find that out of 24,000 companies in our data-set, only 1,258 (About 5%) companies are above 1-crore annual CSR spend threshold. Together, these 5% companies generate a total of INR 24,697 crore (88.4%) out of the entire INR 27,950 crore CSR corpus in India.

    At a regional level, the highest concentration of these companies is in the West, North and South region (1158 out of 1258 or 92.1%).

    In these three regions, average annual CSR fund per company is the highest for North region (INR 7.6 crore) followed the West region (INR 6.6 crore).

    In contrast, companies in North East and Central region generate a much higher CSR fund on a per-company annual average basis. While the All India average for this parameter is INR 6.5 crore per company per year, the same for North East and Central region is INR 18.8 crore and INR 17.2 crore respectively.

    Fewer and bigger companies Vs high concentration of smaller companies – what’s working well for CSR in each region? Stay tuned as we bring more insights on this.

    Meanwhile, do share/comment/like and help more of your network think through this!

     

    Where is India Inc.’s CSR money going?

    Continuing our analysis on region-wise CSR fund generation, investment and circulation in India (Part 1 and Part 2) –

    If we were to plot various regions of India putting their respective wealth on the x-axis and per capita CSR expenditure on people living below poverty line on the y-axis, we would hope to see the plot to look like the one shown below :

    The underlying rationale for a downward sloping line is that needier regions of India should ideally receive a higher share of funds meant for development, including CSR investment.

    Communities at disadvantage for various reasons – whether they live in regions with better wealth or not – undoubtedly benefit from every support they get. However, certain regions in India have a larger concentration of these communities and deployment of social investment in these regions could be of great benefit. How do these regional imbalances play out in CSR fund deployment in reality though?

    A surprisingly inverse graph:

    Sources:

    Ministry of Corporate Affairs: CSR expenditure data 2014-2016. Data for financial year 2016-17 is still getting updated on MCA’s website and this analysis is based on the available data

    Reserve Bank of India: GDP per capita (2014-15); Poverty Rates (2013)

    Census 2011- Population 2011

    Sattva Analysis

    Southern and Western regions receive high CSR investment per capita (for population below poverty line).

    While the GDP per capita of the Southern region is two and half times the GDP per capita of the Eastern region, the former receives about 6 times the CSR investment on a per capita basis than the latter.

    How do we influence the CSR funding to be directed towards the regions that need it the most? Stay tuned as we analyse this further taking into consideration the regional concentration of companies and provisions of CSR Law.

    Meanwhile, please share/like/comment and help more of your network think through this!