Detailed Analysis on Funding of NGO’s through CSR

  • March 27, 2021
  • NGO
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There are lakhs of NGO which are working in India for the welfare of Society. During COVID Pandemic also NGO’s has played a vital role in taking care of poor people and providing them food and shelter during lock down period. Few years back the Government of India has launched NGO Darpan portal to maintain a centralised database of NGO’s working in India. In today’s time if any NGO applies for the Government grant then it is mandatory for them to get Niti Aayog Registration by registering with NGO Darpan Portal

Funding of NGO’s through CSR

Many Indian companies have been contributing to the society through Corporate Social Responsibility (CSR) arms and foundation since their inception, like Tata group, Aditya Birla group, among many others. So, CSR is not an entirely new concept in Indian context. But the Companies Act 2013 has put CSR in the forefront, with a ‘comply or explain’ mandate, for companies that have more than 5 crores INR as net profit for a year.

This mandate has thus opened new doors for Indian NGOs, and has provided a huge opportunity to be tapped. But not many NGOs have been able to take advantage of this, and thus many still do not have access to CSR funds, because of a number of reasons like lack of initiative, little understanding of the scenario, no network, etc. 

Detailed Analysis on Funding of NGO’s through CSR

Concept of Corporate Social Responsibility (CSR) as per Companies Act, 2013

“Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely:-

  • Activities undertaken in pursuance of normal course of business of the company:
    Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-
  • Such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;
  • Details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;
  • Any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level;
  • Contribution of any amount directly or indirectly to any political party under section 182 of the Act;
  • Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
  • Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
  • Activities carried out for fulfilment of any other statutory obligations under any law in force in India;

How Indian NGOs can mobilize funds through CSR?

Here is a step-by-step guide for NGOs on how they may mobilize CSR funds:

  • Understand the Clause 135 of Companies Act 2013:
    In India, clause 135 of Companies Act of 2013 governs the CSR, and was passed on 29th of August 2013. NGOs need to understand the applicability of the clause on companies, its details, permitted themes for intervention, etc. To give a snapshot, the CSR provisions in the act apply for companies with an annual turnover of 1000 crores INR or more, and with more than 5 crores INR as net profit for a year. The act mandates spending of at least 2% of the average net profit in three consecutive years on CSR activities. The themes are also well-defined, along with what will be and what will not be considered expense on CSR. NGOs may ask a legal consultant to understand the act better.
  • Statutory requirements for NGOs:
    Most of the corporate donors donate only to those NGOs which have certificates like 80G registration (Provides 50% Income Tax exemption to the donor), 12A registration (Tax-free income for NGO), apart from NGO Registration certificate. It is in best interest of the NGO to get these registrations done to increase the chances of receiving funds. Foreign companies may donate funds only if the NGO has an FCRA (Foreign Contribution Regulation Act) registration. Ensure that your NGO has all the documentation in place, and do not forget to renew these every year.
  • Map and understand the corporate donors in your area:
    Map the existing companies in your area. Start by understanding their profile, preferences and policies. Try to find out whether they are already undertaking some activities under CSR. And finally, fix a meeting with the CSR team or HR.
  • Start building a network:
    NGOs need to step-out and explore the various possibilities for funding. Events are being organized by many agencies devoted for CSR. Online and offline campaigns are going on year-round. These events provide a very good platform for active participation, networking with prospective donors, and building relationships. These may result in fruitful associations in long run.
  • Keep documented evidence ready:
    Apart from the legal documents, corporate donors also look for authentic evaluation reports, impact data, and third-party evaluations to ensure that NGO is credible, and is doing outstanding work in its field. Make sure to keep the documentation up-to-date.
  • Look for resources required:
    Indian companies are willing to provide support to NGOs in terms of funding, and also in terms of volunteers for the projects. This will also give them a ‘hands-on’ experience of the NGO sector.
  • Ask for feedback from your current donors:
    Your current donors can help you in improving your systems and processes, but only if you ask for their feedback. Make it a routine activity to ask them for feedback for your processes, communication, engagement strategies and every new thing you implement.
  • Set expectations right:
    It is very important to set the expectations right, since the beginning itself, in terms of requirement of resources, activities under the project, intended outcomes and impact. While it is important to aim for a positive impact for the target community, NGOs must let the donor know that timelines also matter a lot. Social change is certainly not an overnight process, and many other factor come into play in this context. To quote the Head of a renowned Indian CSR foundation, donors need to know that ‘Social development is not a low-hanging fruit, rather it is a seed to be sown which will gradually be grown into the tree of desired impact in the years to come!’

Important Notification issued by Ministry of Corporate Affairs

Notification issued by Ministry of Corporate Affairs dated 22nd January 2021, it is mandatory for all NGO’s which wants to raise CSR Funding to enroll with MCA w.e.f 01/04/2021 to get CSR Funding. As per this notification from 01 April 2021 onwards, every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall register itself with the Central Government by filing the Form CSR-1 electronically with the Registrar. On successful submission of Form CSR-1, a unique CSR Registration Number shall be generated by system automatically.

Which NGO’s are eligible to file Form CSR-1?

Following type of NGO’s are eligible to file Form CSR-1 on MCA Portal for getting CSR Funding

  • A company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or
  • A company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or
  • Any entity established under an Act of Parliament or a State legislature; or
  • A company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities

Documents Requirement for filing Form CSR-1

Following documents are required for filing Form CSR-1

  • Copy of PAN Card of the NGO
  • Mail ID and Mobile Number
  • Details of Governing Body Members
  • Copy of Registration Certificate
  • Digital Signature of the Authorised Person with his PAN Number

Takeaway

Since the COVID-19 pandemic reached India, the focus of NGOs and CSR funders has been correctly on addressing immediate relief activities, from providing supplies to migrants to giving targeted support to end-beneficiaries. However, this near-term work may have an unintended adverse long-term impact on NGOs, especially those with significant CSR funding. But it is not only during crises that NGOs support our society. They engage populations that the government has difficulty reaching (e.g. street children), help address issues that are difficult to tackle (e.g. domestic violence), highlight areas of improvement for the government, and even foster innovation. The NGO sector plays a critical role in helping the marginalised in our society today.

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