A recent happiness survey reveals that eight out of 10?people?get a high when spending on charity! If people are not averse to loosening their purse strings for socially beneficial causes, it stands to reason that they’d be the happiest if reassured that their money will be well spent. So, why not have a countdown of best performing charitable non-governmental organizations (NGOs) in our weekend newspapers, much like the best seller listings for books and most popular ratings for movies and songs?
There are more than two million NGOs working in India in diverse fields of development such as education, health, housing, microfinance,?physically?challenged?and old age care, agriculture, environment, emergency relief, etc. But except for a few large ones, the overwhelming majority are small, often run with no more than two or three people, and operate on a shoestring budget. These NGOs have traditionally relied on donations from rich individuals, grants from philanthropic foundations and trusts, and on the numerous government welfare and poverty elimination schemes.
Illustration: Jayachandran/ Mint
Now, spurred on by spectacular economic growth and rising incomes, an ever growing part of the middle class and other upwardly mobile Indians are volunteering to share in helping the poor. Apart from one-time donations, this new breed of donors are even willing to contribute regularly towards specific causes. While most of these donations are relatively small amounts, they are collectively substantial.
In the absence of objective standards to judge their performance outcomes, the biggest dilemma facing potential donors is in choosing from among the mind-boggling number of NGOs across sectors.
There is very little public information about the effectiveness of NGOs. Various studies have shown how they are not immune from the malaise of bureaucracy and corruption bedevilling government and private agencies. There have also been cases of NGOs covering for fraudsters to siphon off a share of the massive flows into the development sector. Many others are merely a means of livelihood for those running the NGO.
Unlike the private sector that’s constrained by profit and the government sector that needs to maintain political consensus, the charitable sector is free to operate without either. It is common for many NGOs to try and replicate the role of government and compete with it in delivering development-related services and activities, thereby getting mired in the consequences.
Given their relatively small size and limited reach, and the scale of poverty challenges, NGOs are most effective when they can demonstrate effective delivery of a welfare service or a development activity or awareness creation and capacity- building activities. Such experiments help government agencies identify the weaknesses in their delivery systems, and carry out course corrections in their programmes. They can sensitize local citizens, build awareness and develop demand-side?pressures?that are vital to enhancing the efficiency of implementing development programmes.
It is thus important to develop mechanisms to judge the outcomes of NGO activities against their stated objectives. Have their actions had the desired demonstration effect? How scalable are their activities? Have their activities increased awareness among the target group? What has been the impact of their performance on the effectiveness of government? How do charities compare in their spending on administration?
One way of making the required information public is to rate these NGOs. If we have credible enough rating of the performance of NGOs in each area and sector, we could indeed have a vibrant market in raising donations for charitable causes. Potential donors won’t face any dilemmas and can donate without apprehension to the cause of their choice. Just as credit rating agencies?help?ration investors’?money among the many financial institutions and instruments, performance rating can allocate donations efficiently among competing NGOs.
It will also go a long way in generating healthy competition between NGOs and encouraging efficiency. Competition will bring in transparency and accountability and ensure they spend less of their resources on administration. The ineffective and inefficient ones won’t attract funds and will leave the field, while the effective and well-run NGOs will be able to expand their activities. Governments will also find it easier to channel their scarce grants. A rating agency will also be the first and most important step in ensuring proper regulation of NGOs.
Two former hedge fund analysts, Holden Karnofsky and Elie Hassenfeld, have made a beginning by floating the world’s first charities rating agency. GiveWell, run solely by them, studies charities in particular fields and ranks them on their effectiveness. It is in turn supported by a charity they created, the Clear Fund, which gives grants to charities they recommend.
Apart from ensuring regular donations, ratings open up a whole wide world of possibilities. It is possible to have income-tax-deductible charity funds, floated by a few rated NGOs, with the objective of raising philanthropic contributions for a specific cause or a bouquet of causes. We can have a primary education fund or a malnutrition fund for instance, soliciting donations from those interested in contributing to the achievement of specific outcomes. NGOs with good ratings could also attract venture philanthropists seeking to provide gap funding, longer-term capital commitments and professional advice.
All this will help the non-profit sector become an important partner, with the public and private sectors, in the development process.
Gulzar Natarajan is a civil servant. These are his personal views. Comments are welcome at firstname.lastname@example.org