The Value of Financial Inclusion

Will the richest 1% own more than 50% of the world’s wealth by this time next year? Oxfam certainly thinks so. Their study, based on data from the Credit Suisse Global Wealth Datebook (2013 and 2014) estimated that the richest 1%, currently own 48% of the world’s wealth and would own over 50% of the world’s wealth by 2016. Released just before the World Economic Forum at Davos in January 2015, these findings caused a storm, provoking shock and awe from around the world.

Whether you agree with their conclusions or not, Oxfam’s study drives home a few facts. Some of the richest people could be burdened by heavy debt but will never experience dire poverty levels faced by people at the lowest economic strata in under-developed countries. This difference is explained by wealth inequality, which in turn perpetuates economic and social inequality.

The rich can afford short-term or long-term debt to increase their long term-earnings, ensuring that their place on a list like Oxfam’s is variable. The poor, especially those without access to formal institutions like banks, education institutions and corporations lack this flexibility. The deeper they are in the red, the more likely they are to stay that way. They live in conditions where the quantum of debt is often 100 times the value of their income, investments, savings or assets.

India is a country of vast poverty and wealth inequality that result in an unequal playing field for those at the bottom of the pyramid. The Economic Times found that approximately 85% of India’s workforce are employed in the informal sector. More than half of those employed in the formal sector are temporary workers without access to benefits like insurance, provident funds, gratuity benefits and savings.

Our country is one of the most cash-dependent countries in the world.High Cash Dependence Time-consuming and costly cash payments make up above 90% of transactions. A recent study found that “citizens of Delhi alone spend Rs9.1 crore and 60 lakh hours in collecting cash[1]”. The lack of access to formal money systems increases the reliance on cash and traps the less privileged who have limited awareness about financial instruments that can protect their wealth.

India is keen to change this cash dependence. The Government’s  Pradhan  Mantri Jan-Dhan Yojana (PMJDY), announced in  August 2014 is a key  initiative in extending formal financial  services to the poor. The scheme allows AADHAR card holders to  open a bank account with zero balance. This is a crucial alternative for the poor and unbanked who may not easily fulfil  banks’ stringent KYC (Know Your Customer) norms. Bank  account holders avail of benefits like receiving LPG (Liquid  Petroleum Gas) subsidies as a direct credit thus reducing  dependence on intermediaries. PMJDY account holders are given RUPay Debit Cards which enables fewer cash transactions.

If the government has declared its intent, can the non-governmental sector be far behind?

Bridging the financial services gap

In the past, NGOs and private players have worked with government agencies to bridge this gap for the poor and marginalised. Small borrowers are not profitable for private banks, and may be too spread out to be reached by government banks. An RBI report in 2013 found that “co-operatives, commercial banks, and other formal financial sector programs in rural areas have not displaced informal sources of credit altogether, as 43 per cent of rural households continue to rely on informal finance in 2002.[1]

Institutions like Self-Help Groups (SHGs) were created and promoted by NGOs like MYRADA to increase financial inclusion of the poor. They brought concepts of savings and credit to the poor while addressing limited access to brick and mortar banks. The National Board for Agricultural and Rural Development (NABARD) supported the growth of SHG with a Rs1 million grant to MYRADA in 1987. By 1991 the Reserve Bank of India (RBI) accepted SHGs as an alternative credit model[1]. Kolkata-based Bandhan Financial Services, set up to provide financial services to the poor, was granted a banking license by RBI in 2014.

Other Institutions in the game

In India, Self-Employed Women’s Association (SEWA) felt that women in the informal sector weren’t being taken seriously by banks and financial service providers. They set up a co-operative bank of their own in 1974. By 2013, the Shri Mahila Sewa Sahakari Bank had a working capital of Rs200 crore and under half a million women customers[2]. The need for financial services for women, seen as unworthy of credit by formal systems was also felt by Mann Deshi Foundation, who set up India’s first rural women’s bank in 1997. These organisations help women access financial services, have savings and investments in their name, and encourage them to borrow to start their own businesses.

Meanwhile, social businesses set up to serve the poor are receiving significant attention from private equity (PE) and impact investors. Intellecap reported that microfinance institutions (MFI) in India received 54% of all impact investing in 2013-14, with organisations working in the sphere of financial inclusion receiving the second largest funding at 17%. Their report found that impact investors along with their co-investment partners have cumulatively invested around US$350 million through 20 MFI deals. Ujjivan Financial Services, an MFI which serves the urban poor, has raised Rs600 crores from a consortium of PE investors[3]. Ujjivan stated that they had distributed over Rs21,050 million in loans in FY12, with profits before taxes growing by 71%[4]. Meanwhile, Janalakshmi Financial Services raised Rs325 crore in Series D funding in August 2013, before selling a minority stake to TPG Capital[5]. Janalakshmi has partnered with established corporates like Bajaj Allianz Life Insurance and HDFC Life Scheme to extend services to their customers.

Ease of access

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Mobile payment seems likely to be the area where innovation will drive the most positive change. In Kenya, for instance, 17 million people, or two thirds the adult population, use M-PESA, a mobile money transfer system. M-PESA was developed by Safaricom, a mobile network operator partly owned by the Vodafone Group. The M-PESA system was initially developed as a CSR initiative, and has gone on to become a product of the company itself. It’s been estimated that 25% of the country’s gross national product (GNP) flows through their system. Will India jump on the bandwagon soon? We hope so. Allowing people to deposit and withdraw cash using mobiles will save them time and money.  Mobile payments will reach them before internet banking does!

Conclusion

Widespread financial inclusion is still a distant dream for India. However, sustained political will and support from NGOs and corporates alike can transform it into an achievable goal. It is time to give the poor access to sophisticated systems that will help them grow and protect their money. This will help them avoid sources of credit that will keep them in the red for the majority of their lives. Technology has reduced barriers for the corporate world, and it is time these services are extended to the nonprofit world as well.


[1]History and spread of the self-help affinity group movement in India: The role played by IFAD’, Occasional Papers: Knowledge for development effectiveness, http://www.ifad.org/operations/projects/regions/pi/paper/3.pdf, July 2007

[2]Women’s Bank? SEWA has been doing it for 39 years,’, Kothari, Smita Pranav, http://www.sewabank.com/articles.html,Outlook India, March 2013

[3]Ujjivan Financial Services raises Rs600 crore’, Vishwanathan, Vivina, Live Mint, http://www.livemint.com/Companies/tJA5elnl6Isj6ksy5y5WtK/Ujjivan-Financial-Services-raises-Rs600-crore.html, Mar 20th 2015

[4] Ujjivan Annual Report, http://ujjivan.com/sites/default/files/Ujjivan_Annual_Report_2013-14.pdf

[5] Janalakshmi Financial set for a record PE fund raise’, Badrinath Raghuvir, Business Standard, http://www.business-standard.com/article/finance/janalakshmi-financial-set-for-a-record-pe-fund-raise-114072301824_1.html, July 24th, 2014

[6]Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt and Investment Survey and Beyond’, Pradhan, Narayan Chandra, ’http://rbi.org.in/scripts/PublicationsView.aspx?id=14986, 9th May, 2013

[7]India’s love for cash costs $3.5 billion a year’, Shetty, Mayur, http://timesofindia.indiatimes.com/business/india-business/Indias-love-for-cash-costs-3-5bn-a-year/articleshow/45934597.cms, Jan 19th, 2015

Ideas about iodine

Bindis to reduce iodine deficiency in tribal women? Iron fish that combat anaemia? In combating malnourishment, perhaps the unconventional will work where the conventional has not reached.

To boldly go

This collaboration between an advertising company and an NGO caught the attention of several media outlets earlier this year. Neelvasant Medical Foundation and Research Centre partnered with Grey For Good (the philanthropic wing of advertising company Grey Group) to distribute iodine coated bindis to tribal women. The iodine from the bindis can be easily absorbed into the wearer’s skin, reducing any deficiency the wearer may have.

Ideas like these are the only research and development (R&D) that the non-profit sector can afford. With the nutritional crisis in India getting worse by the day, it’s time we explored solutions that can better deliver services to populations in need.

There are a lot of positives for an intervention like this. Development solutions tend to be top down, whereas bottom up solutions that assimilate easily into people’s lives could be more successful. The women in this target group can’t necessarily afford iodised tablets, supplements, or additional food to improve their health. The bindi is a culturally accepted icon, and thus likely to be easily assimilated and applied, giving it a higher chance of success.

Sravanthi Challapalli in The Hindu has drawn a parallel between the bindis and the Lucky Iron Fish campaign in Cambodia. Researchers found that Cambodians held a cultural belief that a certain kind of fish was lucky. Their next step? Give people iron pieces shaped like the lucky fish and convince them to place it in their cooking pots. The iron from the fish would seep into the food as it was being cooked. 9 months in, the organisation reports “a 50% decrease in the incidence of clinical iron deficiency anaemia, and an increase in users’ iron levels.” The solution was elegant, inexpensive and caught on because of its cultural context.

Another success story comes to mind. Design Impact is an international social innovation firm that brings design and innovation together to make a better world. Two of their Fellows worked with Pune NGO Deep Griha Society to create a fortified laddoo that was designed to combat malnutrition and related deficiencies. They too had success with their pilot intervention, however ran into challenges when they had to find a way to market the laddoos commercially. Surely there’s a buyer for this opportunity?

Are there any lessons for India here?

A caveat here – we do need to evaluate a solution before declaring it a success or failure. However, there’s surely a lot for us to learn and experiment with. In many cases solutions may be lying right under our noses. All it takes is a special mind to bring the problem and the solution together.

Arts philanthropy

During the Renaissance in Italy, the fabulous wealth of the Medicis funded the work of talent like Botticelli, da Vinci, Shakespeare and others. Many of history’s most famous artists received generous state and private patronage to practice and publish their work. Shakespeare and his theatre company counted Queen Elizabeth and King James I as royal patrons. The financial and social consequence of this recognition helped Shakespeare write and stage some of his best work.

Is there less arts patronage in the modern world? When it comes to arts philanthropy, an underfunded business the world over, this might certainly be the case. What’s more, the principle of first among equals applies within the arts sector too. Performing arts (forms of dance, music, and theatre) receive more funding than visual arts (painters, sculptors, graphic designers).

With Indian industry taking its place on the global stage, could the era of Indian corporate patronage of the arts be far behind? We profile a few business houses who have extended their support to this sector.

  • Zee Entertainment/Essel Group: Essel Group company Zee Entertainment was the title sponsor of the Jaipur Literature Festival (JLF) this year. JLF was incubated by the Jaipur Virasat Foundation, a non-profit that works with traditional artists and art forms in Rajasthan. JLF is now recognised as the largest free literary festival in the world, with approximately 2.25 lakh people attending in 2015. Jaipur Literature Festival Director Sanjoy Roy stated that JLF had a budget of Rs8 crore in 2015.
  • The Mahindra Group: The Mahindra Group has been building itself a name in the arts space over the past few years. With initiatives in theatre, film and music, they have a more diverse portfolio than the rest. The group has been funding the Mahindra Excellence in Theatre Awards (META), an unusual but much needed form of sponsorship for theatre professionals since 2005. They’ve also been sponsors of The Kabir Festival, a festival of musicians and performers who are popularising poetry as written by the 14th century icon. They had a three-year collaboration with the international Sundance Institute that recognised emerging filmmakers. If that wasn’t enough, they also organise The Mahindra Blues Festival, dedicated to the blues a music festival dedicated to the
  • The Aditya Birla Group: It’s been said that theatre is the only art form that has been dying for the past 2,000 years but is still not dead. Aditya Birla Group’s Aadhyam initiative has taken it upon itself to revive a culture of theatregoing as its objective this year. In 2015, Aadhyam commissioned five Mumbai-based theatre groups to produce plays for their brand as its first offering. The organisation then took on the responsibility of staging 50 shows at premium venues in Mumbai and Delhi, giving people a full-blown theatre experience. Aadhyam has stated that it may choose to support other forms of performing arts in the future.

Don’t fall victim to charity fraud!

There are plenty of people who will take advantage of the goodness of your heart. The U.S. is abuzz with news about cancer charities that embezzled over $187 million worth of funds which were earmarked for cancer care. Sadly, “the charities spent about 97% of donations they received either on private fundraisers or themselves. Only 3%… went to help actual cancer patients”. Closer to home, disaster-relief provider Goonj.. discovered that an entity not affiliated with them was collecting money and material using Goonj..’s name. In a different case, In Defense of Animals was surprised to find photos of their work being used by others.

On the street, you may have been accosted by individuals who claim to be working with NGOs. They show you patient or student details, medicines required or more. Hearing stories of people’s difficulties always puts us in a spot – how many of us can just walk away after hearing that a helpless 3 year-old needs a life-saving surgery? Yet are you sure that the cause you are opening your wallet for, is genuine? Do follow these steps to avoid falling victim to fraud:

  • What’s in a name? Ask for the name of the organisation and look it up for yourself. As in the case of the US charity fraud, fraudsters adopt names that sound similar to legitimate well-recognised NGOs, and there’s nothing to stop them from claiming details of programmes as well. Every NGO will have a formally registered name mentioned on their website or elsewhere online. Ensure that the entity is original. Consider calling the listed number and speaking to someone in the organisation.
  • Ask for details: Check if the organisation has a 12A and/or an 80G certificate. A 12A certificate exempts the NGO’s income from tax because of the charitable nature of its activities. An 80G certificate means that you can claim tax benefits for your donation. Watch out for NGOs that can’t offer you the 80G certificate, and can’t explain why. NGOs offer a receipt for your donation, be wary if you are being solicited for a donation without a receipt.
  • Where is the money going? This is another important question to ask, especially if you are giving cash donations. Earnest volunteers may assure you that they are going directly to the beneficiary, but it could be very easy to route the money elsewhere. Find out about the organisation’s work – does it match what is stated by the telemarketers/fundraisers.
  • Check an NGO’s financial history: HelpYourNGO has standardised the financial reports of over 550 NGOs, presented in an easy-to-read format. Use our website www.HelpYourNGO.com to see how much of an NGOs’ income is spent on beneficiaries. Anything above 70% is a healthy number. Similarly, you can check whether an NGO spends large sums of money on fundraising activities like telemarketing at the cost of beneficiaries.
  • Check the NGO’s Financial Score: Our financial score represents an organisation’s financial efficiency and sustainability. What is the strength of the NGO’s balance sheet? What are the sources of income? How has the organisation’s growth been in the past few years? The Financial Score presents this information in a simple rating.

We want to make sure your money goes to organisations who will spend it in the most productive way. As we always say, don’t forget to evaluate before you donate!

Our Summer Reading List is here!

It’s not every day that someone puts out a list of recommended reading that applies to the nonprofit sector. Bill Gates puts out a list each year, encouraging readers to dive into topics of interest like healthcare, climate change and world hunger. We thought we’d round up all the resources that keep us updated with the latest trends and developments related to the nonprofit sector across the world.

Publications covering India:

  • The Better India: Looking for stories of hope and inspiration? Look no further than The Better India (TBI). TBI looks to cover positive stories of hope and change from across the country, and has brought recognition many change makers in the process.
  • The People’s Archive of Rural India: This initiative set up by revered journalist P Sainath documents the stories of India’s invisible and unheard millions. As Sainath says, “There’s a continent within our subcontinent, …and that’s the 833 million people of rural India who speak 780 languages… there isn’t a single platform today that captures this incredible diversity. PARI is a wonderful resource on stories that mainstream media misses out on.
  • Accountability Initiative BlogAI was set up to monitor and research government spending on citizens. They also present the results of their work in reader friendly formats like the 4-page easy to read Budget Briefs series. If you’re game for some serious reading, do check out their website and blog for analysis of budgetary allocation and spending on various social sector schemes. Those looking for light reading should check out the RaghuBytes blog, a tongue–in-cheek look at India’s policy landscape written by a retired Joint Secretary of the Ministry of Panchayati Raj.

Videos:

  • TED Talks: Presentations by TED speakers can be an efficient way to get a grasp of a new topic. Speakers cover a range of issues spanning theories of social change, human behavior, domestic violence, educational reform and more. We recommend The Way We Think About Charity is Dead Wrong, Dan Pallotta’s powerful but polarizing call for a shakeup of the nonprofit world. Bookmark their site for uninterrupted viewing!

Publications:

  • Keep up with scholarly discourse: Not sure about the difference between impact and outcome? If funders frequently quiz you on incomprehensible metrics, the Stanford Social Innovation Review is the place for you. Their blog features detailed articles and explanations of technical terms from the nonprofit sector, case studies, and success stories from across the globe. We’ve been following Kevin Starr, former surgeon and active philanthropist who writes evocatively on all things nonprofit. He’s got tips for donors (Just Give ‘Em the Money: The Power and Pleasure of Unrestricted Funding) and nonprofits (The Trouble With Impact Investing), they’re worth a read.

In the future, we’d like to present a list of must-read newspaper columnists too! For the present, we’d recommend looking out for Naren Karunakaran, who covers the philanthropy space in detail. Anurag Behar of the Azim Premji Foundation has a bi-weekly column in Mint that covers education and livelihood related issues with some wonderful insights.

That’s our list! Let us know about your favourite reads and who you’d recommend!