Rating
the
effectiveness of NGOs will generate healthy competition and help
potential donors choose better
A recent happiness survey reveals that eight out of 10 people get
a
high when spending on charity! If people are not averse to loosening
their purse strings for socially beneficial causes, it stands to reason
that they'd be the happiest if reassured that their money will be well
spent. So, why not have a countdown of best performing charitable
non-governmental organizations (NGOs) in our weekend newspapers, much
like the best seller listings for books and most popular ratings for
movies and songs?
There are more than two million NGOs working in India in diverse fields
of development such as education, health, housing,
microfinance, physically
challenged and old age care, agriculture,
environment, emergency relief, etc. But except for a few large ones,
the overwhelming majority are small, often run with no more than two or
three people, and operate on a shoestring budget. These NGOs have
traditionally relied on donations from rich individuals, grants from
philanthropic foundations and trusts, and on the numerous government
welfare and poverty elimination schemes.
Now, spurred on by spectacular economic growth and rising incomes, an
ever growing part of the middle class and other upwardly mobile Indians
are volunteering to share in helping the poor. Apart from one-time
donations, this new breed of donors are even willing to contribute
regularly towards specific causes. While most of these donations are
relatively small amounts, they are collectively substantial.
In the absence of objective standards to judge their performance
outcomes, the biggest dilemma facing potential donors is in choosing
from among the mind-boggling number of NGOs across sectors.
There is very little public information about the effectiveness of
NGOs. Various studies have shown how they are not immune from the
malaise of bureaucracy and corruption bedevilling government and
private agencies. There have also been cases of NGOs covering for
fraudsters to siphon off a share of the massive flows into the
development sector. Many others are merely a means of livelihood for
those running the NGO.
Rated NGOs could also float
tax-deductible charity funds for specific causes such as malnutrition
Unlike the private sector that's constrained by profit and the
government sector that needs to maintain political consensus, the
charitable sector is free to operate without either. It is common for
many NGOs to try and replicate the role of government and compete with
it in delivering development-related services and activities, thereby
getting mired in the consequences.
Given their relatively small size and limited reach, and the scale of
poverty challenges, NGOs are most effective when they can demonstrate
effective delivery of a welfare service or a development activity or
awareness creation and capacity- building activities. Such experiments
help government agencies identify the weaknesses in their delivery
systems, and carry out course corrections in their programmes. They can
sensitize local citizens, build awareness and develop
demand-side pressures that are vital to enhancing the efficiency of
implementing development programmes.
It is thus important to develop mechanisms to judge the outcomes of NGO
activities against their stated objectives. Have their actions had the
desired demonstration effect? How scalable are their activities? Have
their activities increased awareness among the target group? What has
been the impact of their performance on the effectiveness of
government? How do charities compare in their spending on
administration?
One way of making the required information public is to rate these
NGOs. If we have credible enough rating of the performance of NGOs in
each area and sector, we could indeed have a vibrant market in raising
donations for charitable causes. Potential donors won't face any
dilemmas and can donate without apprehension to the cause of their
choice. Just as credit rating agencies help ration investors money
among the many financial institutions and instruments, performance
rating can allocate donations efficiently among competing NGOs.
It will also go a long way in generating healthy competition between
NGOs and encouraging efficiency. Competition will bring in transparency
and accountability and ensure they spend less of their resources on
administration. The ineffective and inefficient ones won't attract
funds and will leave the field, while the effective and well-run NGOs
will be able to expand their activities. Governments will also find it
easier to channel their scarce grants. A rating agency will also be the
first and most important step in ensuring proper regulation of NGOs.
Two former hedge fund analysts, Holden Karnofsky and Elie Hassenfeld,
have made a beginning by floating the world's first charities rating
agency. GiveWell, run solely by them, studies charities in particular
fields and ranks them on their effectiveness. It is in turn supported
by a charity they created, the Clear Fund, which gives grants to
charities they recommend.
Apart from ensuring regular donations, ratings open up a whole wide
world of possibilities. It is possible to have income-tax-deductible
charity funds, floated by a few rated NGOs, with the objective of
raising philanthropic contributions for a specific cause or a bouquet
of causes. We can have a primary education fund or a malnutrition fund
for instance, soliciting donations from those interested in
contributing to the achievement of specific outcomes. NGOs with good
ratings could also attract venture philanthropists seeking to provide
gap funding, longer-term capital commitments and professional advice.
All this will help the non-profit sector become an important partner,
with the public and private sectors, in the development process.
Gulzar Natarajan is a civil servant. These are his personal views.
Comments are welcome at theirview@livemint.com
