Chronic underfunding of non-program costs is a recognised problem that has attracted increasing attention in India. “There is almost systematic deprivation of NGOs in terms of funding management costs,” said Anant Bhagwati, director of capacity building at Dasra.
To address what one Indian funder called a “serious shortage of evidence” of this underfunding, Bridgespan conducted a broad-based survey of 388 NGOs representative of the sector, and a financial analysis of 40 leading and relatively well-funded NGOs. This research revealed a clear pattern of systemic deprivation.
Of the 388 NGOs surveyed:
- Only 18 percent said they invest adequately in organisational development.
- About half reported no operating surplus over the past three years.
- Eighty-three percent struggle to secure coverage of indirect costs.
- Fifty-four percent were left with less than three months of reserves in September 2020, after the COVID-19 pandemic caused NGOs to dip into their reserves.
- Seventy percent of NGOs led by members of the Dalit, Bahujan, or Adivasi (DBA) communities have not reported any operating surplus in the past three years, compared to 45 percent for non-DBA-led NGOs.
- Among non-metro and rural NGOs, 61 percent reported fewer than three months of financial reserves, compared to 51 percent of NGOs based in eight major cities.
- There is no one indirect cost rate that fits all NGOs. Indirect costs range from five to 51 percent of total costs—depending on the NGO’s mission, operating model and other characteristics—and averaged 19 percent. Yet 68 percent of grants that the NGOs received over a three-year period allocated less than 10 percent for indirect costs.
Bridgespan’s research and interviews with sector leaders also revealed four path-changing practices that could provide true cost funding and stronger, more resilient NGOs with greater capacity to deliver on their social impact. These practices include developing multiyear funder-NGO partnerships, closing the indirect-cost funding gap, investing in organisational development, and building financial reserves.
Said Pritha Venkatachalam, Bridgespan partner and co-author of the report: “Our research demonstrates powerfully that it is high time for funders to act. NGOs should be provided with the resources and support they need to build their organisational strength and financial resilience, else their contributions to help solve some of society’s most pressing problems will remain subscale. The status quo serves no one well.”
Bridgespan’s full report can be found at https://bspan.org/30OHznN
About The Bridgespan Group
The Bridgespan Group is a global nonprofit that collaborates with social change organisations, philanthropists, and impact investors to make the world more equitable and just. Bridgespan’s services include strategy consulting and advising, sourcing and diligence, and leadership team support. We take what we learn from this work and build on it with original research, identifying best practices and innovative ideas to share with the social sector. We work from locations in Boston, Johannesburg, Mumbai, New York, and San Francisco.