Non-profit organizations that rely heavily on foreign grants in dollars and pounds are worried they are about to lose a portion of their budgets.
They can’t blame funding cuts or stingy donors. Rather, their problem is homegrown: the appreciating value of the rupee.
Now, the fear has gotten worrisome enough for the recipients of the Rs7,878 crore in foreign aid to ask if they should devise solutions, from investing their money to building reserves to protect against fluctuations in currency.
Most donors issue grants at a fixed exchange rate, or assuming a narrow range, months ahead of the funds’ release; for many non-governmental organizations (NGOs), that happened when the rupee spanned Rs43-46 to a dollar. On Monday, the currency was Rs41 to the dollar.
At that rate, the grants being released now, which pay for everything from prenatal care for poor women to rehabilitation of earthquake victims, could take close to a 10% hit.
And there is little to nothing that the organizations can do to protect themselves against the problem, observers say. India’s tax laws prevent NGOs from investing in the stock or derivatives market.
“Corporate organizations can go for options, hedging, all sorts of things that we can’t do,” says Raj K. Kapil, head of operations for ActionAid India, the local arm of the international NGO, ActionAid that works on poverty alleviation programmes. “We have to suffer. It’s as simple as that.”
The only options are to tap into a small contingency fund through the organization’s head office in Johannesburg (South Africa), or to go out and raise more money, says Kapil. “We choose to try and go out and raise more money.”
Donor organizations, from foreign governments to large foundations, are also uneasy, especially if the rupee continues to gain ground.
“It’s really tight on us right now and there isn’t really much we can do to make up shortfalls,” said a Delhi-based programme officer for a large US-based private foundation that provides funding to many NGOs in India. She requestedthat her name and the foundation’s be withheld because she isn’t authorized to speak to the media.
US headquarters didn’t return calls or emails for comment.
“If it gets any worse, we will really have to take it up with the head office,” she said. “Up until now we’ve had some flexibility and been able to tap into that little pot of money you can usually find somewhere.”
Already, she said, the exchange rate has moved out of the range where the latter is feasible.
“We’ve actually put in a pitch to our home office for a larger budget for next year. The exchange rate has contributed, but inflation has been a dig driver as well. A rupee just doesn’t get you near as much as it used to,” she added.
NGOs also worry when wire transfers get hung up in the banking system for a week or more as is often the case, especially smaller organizations that tend to use state banks, officials said.
“Exchange rate fluctuations are worrying everyone right now,” said Pooran C. Pandey, chief executive of the Voluntary Action Network of India (VANI), an umbrella group that represents 2,400 NGOs. And just a few days can make a big difference.
“The currency has been fluctuating so rapidly that you get a fairly large amount of money getting lost along the way,” Pandey said.
One way to combat the shortage is to tap into reserves kept aside by funding organizations to deal with fluctuations in exchange rates, said Sanjay Patra, executive director of the Financial Management Service Foundation, which monitors projects and provides financial and legal advice to developmental organizations.
“No one has really looked at it because generally NGOs have been gaining and the exchange rate has worked to their benefit,” said Patra.
However, most NGOs don’t have access to reserves.
“The only place where you see reserves is really in the area of humanitarian disasters, where you don’t know what you are going to need and when you are going to need it,” says Leslie Browne, executive director of Oxfam India. “Reserves set aside for exchange rates, that you don’t have.”
Private foundations have more flexibility than large bilateral aid organizations funded by foreign governments, such as the UK’s Department for International Development (DFID) or the US Agency for International Development (USAID), which operate here, say observers.
“All of our contracts and grants are based on the assumption of a narrow exchange rate and in the last three months, things have moved outside of that range,” said an official from USAID, who said she couldn’t be identified because of agency policy.
The organization hasn’t had reports of significant problems from its donors yet and is merely keeping a very close eye on the issue.
“If this continues, we’ll deal with it when we come to it, but we’re not there yet thankfully,” she said.
But the situation might be at the point where “more people have to hunker down and figure out what next”, she added.