Growing wealth thrusting Indian philanthropic sector

08 May 2015

The number of Indians engaging in philanthropic activity has increased by 100 million between 2009 and 2013, an increase of 14%, finds recent research from Bain & Company. While the number of donors has increased, as many as 55% act out of guilt and often pick non-profits for ad hoc or unsophisticated reasons. This has created a class of ‘tier 2’ non-profits, whose outcomes are often lacklustre and whose activity more and more aims at capturing unsophisticated donor support just to exist.

The practice of DÄ?na, from the Hinduism tradition, is the diligent practice of cultivating generosity; this can take the form of directly helping those in need or supporting philanthropic projects. To find out in how far Indian people are practising dÄ?na, or other reasons for deciding to gift, Bain & Company recently released its fifth ‘India Philanthropy Report’. This year’s edition focuses on the evolution of the philanthropy landscape in India, which has in recent years built momentum.

The report among others highlights defining characteristics of different types of donors and non-profit organisations, unravels out what donors expect from non-profits, isolates critical challenges that non-profits face and presents a way ahead for the sector. To gain an analytic insight into the current landscape, the consultancy surveyed 377 high-net-worth individuals (HNWIs) across eight major cities as well as roughly 50 non-profit organisations, involving 77 employees and 46 senior staff*.

Indians are increasingly involved in philanthropic activities

Improved giving
The analysis finds that the philanthropic sector in India has grown strongly in recent years, from saplings in 2009 when 14% of the Indian adult population donated cash and 12% donated their time, to young trees in 2013, when 28% of the adult population donated money and 21% donated their time. While the % increase is modest, it hides, given the vast population size in India, that the increase represents 100 million people that have in four years started donating money philanthropically.

The consultants cites the increase in activity to stem from India’s growing wealth and the increasing global interest from its population. According to Bain, the wealth of India’s HNWI has grown at an average of 6% per year recently, from $477 billion in 2009 to $612 billion in 2013, while the wealth of ultra high worth individuals’ even grew by 12% (CAGR) between 2011 and 2013, widening the window of opportunity for charities. While India remains (at 28%) far behind highly developed countries in terms of the number of donors, with almost 75% of UK citizens giving, in relation to developing countries with similar GDP India is an impressive outlier.

Indias philanthropy sector is mature compared to countries with similar profiles

Donor activity
As part of the research, the consultancy finds that there is a disproportionate focus on certain kinds of goods, with 40% of survey respondents donating to causes like education and child welfare, whereas less than 15% donate to causes that support the environment and the arts. Of the survey respondents, there was also a generally positive mood for continued and increased giving, with more than 40% of current donors surveyed planning to increase their philanthropic activity while only around 5% would decrease their activity in the coming years.

The most popular philanthropic causes are education and child welfare

The civil society sector as a whole is expected to gain a massive boost in the coming years as legislation, the Companies Act, affects the behaviour of business toward philanthropic activity. Not only will large profitable companies be obligated to give, but oversight and governance over that which is given is likely to improve as companies must be able to justify the donations. It is estimates that the Act may produce $2.5 billion to $3.3 billion in corporate contributions to the philanthropy space.

43 percent of donors are willing to increase their donations

Lacklustre giving
The number of non-profit organisations in India are seeing rapid growth in recent years, which is part of what has driven the growth in donations according to the report. There are now more than 2 million non-profit organisations in India, with the number of registered non-profits under the Foreign Contribution Regulation Act (FCRA) increasing from 30,000 to approximately 44,000 in the past 10 years.

Yet not all non-profits and donors enjoy the same level of sophistication. The donors can be broadly grouped into two camps, tier 1 donors that are doing it for a cause that they stand behind and understand the benefits of, and tier two donors that act from guilt and do not have a sophisticated understanding of the cause nor its effecting approach. In terms of numbers, around 55% of donors act from guilt or the need to give back, while around 15% act out for a cause.

Donors motivations to donate include cause, relationship, tradition and guilt

The consultancy notes that tier 2 donators create a problematic environment, as their ad hoc donations often go toward funding unsophisticated non-profits whose organisational capacity and effectiveness can be lacklustre. These tier 2 organisations themselves become dependent on securing further donations and forsake their philanthropic goal for mere existence. Creating what the consultancy calls an ‘NGO trap’.

While tier 1 donors understand their giving activity and actively select causes, their focused nature belays its own issue, with a lack of diversity reducing the effectively run non-profits to a small number of key issues while foregoing a wide range of unseen or unpublicised issues that potentially hundreds of millions of India’s people face on a daily basis. 

The philanthropy space is two-tiered

Focusing on increasing the number of sophisticated donors and focused non-profits therefore is key to improving the effectiveness of the donated money in resolving real social issues faced by people as well as reducing the apathy of those that give by their money or time being seen as bearing fruit.

* According to a recent study from The Boston Consulting Group, India has 175,000 HNWIs, ranking the country 15th globally in terms of the absolute number of millionaires.