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02 June 2016
This was a note drafted on behalf of Social Synergy Foundation (an organization that the writer collaborates with) to initiate conversations with individuals and institutions on a need to take a more strategic look at funding the development sector in India.
This note is part of a chain of evolution of thinking on how to really sustain the essence of development against today's highly polarized and vitiated environment. Accordingly, see a) this; b) this & c) this.
The motivation and genesis of this entire thought process owes its due to Rajesh Shah, Managing Trustee of VIKAS Centre for Development (Ahmedabad). The concept of taking a portfolio based approach to working with organizations in development sector owes its origin to interactions of the writer with Vikas Arya.
1. Social Synergy Foundation (henceforth referred to as SSF) is a management consulting firm registered under Section 8 of Indian Companies Act, 2013 in Mumbai. It is an evolving collaboration of people from different professional backgrounds, viz., investment banking, management consulting, corporate banking, social entrepreneurship and development finance. The individuals share a common interest and experience of working at a grass-root level with organizations and funders in the development sector.
2. What binds the members of SSF is a pragmatic understanding of development borne out of their respective individual experiences. The understanding is: in a country like India, development will need to follow a 70:30 mix for forseeable future -- 70% left-of-centre and 30% right-of-centre. An undue haste in taking a market-centric view on core developmental issues will severly impair and undermine, in a few broad strokes, the ability of civic society to leverage the mammoth historical investments made in building grass-root organizations.
In short, the country needs a large measure of Build on What you Have with moderate measure of Stand-up, Start-up & Innovate India.
3. This implies that development sector needs:
3.1 More of not-for-profit model and not less of it.
3.2 Grass-root organizations to act as Institutions acting in interest of community as opposed to Instruments to executre projects and programmes on behalf of multiple competing donors including Governments, Foundations and, now, CSR units.
3.3 Responses to developmental issues to evolve bottom-up as a studied & strategic reaction to the operating context, and at their own pace rather than being retro-fitted top-down disguised under elegant theories of change.
3.4 Selective infusion of market-based solutions and terminology rather than its over-the-counter uncritical wholesale adoption.
4. What does it mean if you are an individual or institution interested in supporting development sector financially? The sector, effectively, needs funders that participate in risks rather than sanction projects and monitor outcomes. Not very unlike a shareholder in a well-governed corporate. However, not any type of shareholder would do the trick. The funder needs to have the temperament of a value investor: one that acts as a partner to the organization invested in building an institution over a period of time as opposed to focusing only on short-term and stand-alone annual metrics (e.g. how many children innoculated).
5. It is a fact that the landscape of development sector funding is changing on account of three notable head-winds: unfortunate in the first case, and pre-mature when it comes to the latter two. The three head-winds are:
5.1 An unduly and unjustifiably tilted perception of the NGO and allied institutions in sections of media, government, corporate and civic society.
5.2 A very visible withdrawal, or increasing bent towards market-oriented solutions, of Developmental Finance Institutions (DFIs) and Government, thereby curtailing sharply a very vital source of strategic, long-term and patient funding to the sector in India.
5.3 An increasing expectation from private donors that the development sector gradually transform itself into a format that fits the paradigm of 'impact investments into social enterprises'.
6. From our regular conversations and consulting engagements with development sector organizations, we see these changes gradually creating a fundamental divergence between mission and strategy. This change is most painfully noticeable for established, credible but small-scale grass-root organizations working in difficult areas, on unconventional & non-fadish issues, and / or deploying multi-pronged and complex strategies. If given serious thought: long-term implications of this change should worry every concerned citizen.
7. But these same head-winds also provide an opportunity for a different category of funders to step-in to play the role of strategic value investors who build institutions as opposed to only supporting projects. The different entities who could play this role are:
7.1 Small-sized family foundations in India and abroad.
7.2 Progressive & liberal-minded CSR groups who are willing to recraft their CSR strategy to take a portfolio-of-organization-based approach to funding rather than thematic or sectoral approach.
7.3 Individuals (including HNIs and NRIs) who are sympathetic and sensitive to the multi-dimensional nature of development sector issues, complexities in execution, and uncertainties in outcomes.
8. Do we see any funding institutions that are trying to strike an explicitly institutional note? There are institutions like Omidyar and Dasra that do take institutional factors into consideration when examining grant funding proposals. However, there are not many such institutions. Most of them are designed to provide large-ticket funding to a few organizations in select sectors. The space for strategically funding the long but rich, diverse & complex tail in a portfolio-mode is very much open.
9. SSF is in early stages of testing a concept with European donors in alliance with its partner GoodRoots (based in Berlin, Germany) along these lines, viz., funding this long tail.
The central idea is: the prospective funder selects and invests capital (grant, debt or equity) in specific organizations and GoodRoots-SSF provide long-term, very hands-on organization development support to ensure that the funding is utilized in a highly nuanced and strategic manner.
10. What kind of organizations would be supported such an approach? GoodRoots-SSF would prefer established and mature organizations. However, it would be open to recently established organizations (start-ups) provided the idea is genuinely different and deeper.
Practically, GoodRoots-SSF see opportunities for investments in two types of organizational formats: traditional stand-alone not-for-profits; and not-for-profits which have one or more for-profit arms to take tactical advantage of market-based opportunities. We call these latter type of organizations 'hybrids'.
11. What would be the kind of OD support that GoodRoot-SSF would provide? The OD support would consist of three steps:
11.1. Step 1: Need asssessment to assess the gaps in the organization to convert it into an institution.
11.2. Step 2: A year-long organization development support to prepare the organization to receive strategic funding.
11.3. Step 3: At the end of the year, assessing the quantum of funding required and its structure. Post the funding, GoodRoots-SSF would continue the OD support for the duration and tenure of the funding commitment.
12. How can an interested funder participate in this process? A potential funder has three choices:
12.1 Brownfield (GoodRoots-SSF): Funder selects one or more organizations from the existing portfolio of clients of GoodRoots-SSF. The advantage for the funder is that GoodRoots-SSF are already embedded in the client for a reasonable time and are in a position to channel the funding skillfully with immediate effect.
12.2 Brownfield (Funder): Funder wishes to engage GoodRoots-SSF along the lines of step 11 with an organization that it is already invested in.
12.3 Greenfield: GoodRoots-SSF scout for organizations of interest to the funder. Once the funder completes initial due-diligence and shows a firm interest, GoodRoots-SSF commence the engagement where in for the first year they conduct a need assessment and provide OD support as outlined in step 11 above.
13. What kind of capital can be deployed through this route? Given that the recipient organizations will be not-for-profits or hybrids, following possibilities exist:
13.1 Donations to corpus
13.2 Grant for a long-term strategic initiative
13.3 Grant to set-up a revolving fund
13.4 Interest-free loan with a medium to long-term tenure of repayment
13.5 Low-interest bearing loan with a medium to long-term tenure of repayment
13.6 Grant that serves as a collateral with financial institutions for long-term lending to the not-for-profit or hybrid.
14. Has anyone within India shown interest? So far, GoodRoots-SSF have not actively solicited interest from Indian donors. However, if there is anyone interested in pursuing the above concept with domestic funding, he or she can write to kushagra at sosynergy dot org.
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