The International Journal
of Not-for-Profit Law

Volume 3, Issue 2, December 2000

India

I) Ministry of Home Affairs Relaxes F.C.R.A. for Earth Quake Relief Work

By Noshir H.Dadrawala
Executive Secretary
Centre for Advancement of Philanthropy

A news item in “The Hindu” (Delhi edition) of January 30, 2001 (page 11) states:

Voluntary groups can receive foreign aid

“The Union Home Ministry today permitted voluntary organizations, already registered under the Foreign Contribution (Regulation) Act, 1976, to receive foreign contribution in cash and kind for assisting the victims of the Gujarat earthquake. A spokesman said registered organizations could receive contributions whether or not their objectives provide for such an activity.

Organizations permitted to accept foreign contribution for a specific project are also allowed, as a special case, to use the money for assisting the victims.”

Interpretation

In our opinion, this relaxation does not mean that any and every voluntary organization can now receive foreign contribution for Gujarat earthquake relief or rehabilitation.

Only those voluntary organizations, which are registered under FCRA or have prior-permission to receive foreign contributions, can receive foreign contribution for earthquake relief. The relaxation is only with regard to the type of organization or the object under which an organization may have been registered or may have received prior permission.

For example if a voluntary organization is registered as an advocacy group under FCRA, this recent relaxation would now enable it to receive foreign aid for Gujarat earth quake.

Similarly, if a voluntary organization has received prior permission to receive foreign funds for an educational program/project, the recent relaxation would enable it to use the funds for earthquake relief, with the consent of the foreign donor.

II) Budget for Financial Year 2001-2002 Expected to Bring ‘Commercial’ Non-Profit Organizations in India under the Income Tax Net

By Noshir H. Dadrawala
Executive Secretary
Centre for Advancement of Philanthropy

According to a report published in the Mumbai edition of “Business Standard”, dated November 25, 2000, “Charitable institutions may be brought under the tax net from this budget. The proposed move is expected to yield more than Rs.6, 000 crore each year.”

According to reports, the central/federal government is planning to divide charitable organizations into two categories on the basis of their source of income: (i) donation-based non-profit organizations (i.e., charities run exclusively on voluntary donations) and (ii) ‘commercial non-profit organizations’ having other sources of income. It is the latter category that may face the taxman. Voluntary organizations involved in “income generating activities” such as sale of greeting cards, corporate stationery, etc. are likely to fall in the tax net.

At present, charitable institutions enjoy tax-free status (i.e. the income they generate by various lawful means is exempt from income tax) under sections 11 to 13 of the Income-Tax Act, 1961, provided they are registered as such under section 12A and follow other prescribed norms with regard to investments, use of funds, etc. Donors who give donations to such institutions also enjoy tax rebates/deductions under section 80G of the Act.

Reportedly, the finance ministry is concerned with the “tremendous abuse” of these provisions. The government appears to be of the view that charitable institutions, many with suspect credibility, have mushroomed in the country over the years and take advantage of the tax exemptions, depriving the government of revenue. This includes the large number of schools, colleges and hospitals that run under the guise of charitable institutions. It is proposed that the tax rates for such bodies should be on par with corporate taxes.

“Charitable purpose” under section 2(15) the Income-Tax Act includes relief of the poor, education, medical relief and the advancement of “any other object of general public utility”. Institutions registered with the object of promoting any one or more of these purposes must utilize their income only for such specified charitable purposes.

There is a view that some of the non-profit organizations often charge more than similar organizations run for profit. It is also alleged that, at times, the income of these organizations is held by a few trustees.

It is expected that safeguards will be built into the Income- Tax Act to segregate the “genuine” non-profits from the fraudulent ones. A set of standards will also be drawn up to differentiate the socially oriented charities from the commercial non-profit organizations.

The “commercial non-profit organizations” are likely to be assessed at corporate tax rates.

The issue before the government and the voluntary sector is how one defines a “commercial non-profit organization.” What benchmarks must be used to distinguish one from the other?

Many NGO’s run “income generating programs.” Will these organizations be brought under the tax net?

What constitutes “commercial activity?”

In our opinion, merely running an “income generating program” cannot and should not make an organization “commercial.”

In addition, the true meaning and spirit behind the term “non-profit” is that the organization remains “non-profit distributing,” i.e., in case of “profit” or an “excess of income over expenditure” the surplus is not distributed by way of dividends or share of profit among members of the organization. Rather, the surplus is ploughed back into the organization for charitable purposes.

One hopes that in its enthusiasm to clean up the non-profit sector the Indian government does not end up “throwing out the baby with the bath water.”

III) Interview with Shankar Venkateswaran, CEO of Partners in Change on the Subject of Corporate Social Responsibility

This interview was first published by the Times of India on November 1, 2000.

Corporate Social Responsibility (CSR) has found widespread acceptance in the West. In India, however, acceptance levels are not so high despite changing mindsets. Shankar Venkateswaran, a management graduate, gave up a corporate career five years ago to promote CSR as a concept, full-time. This he does as chief executive of Partners in Change, helping build partnerships between the corporate and voluntary sectors. He recently co-authored a book, `The Business of Social Responsibility’, a step-by-step guide to companies that want to be socially responsible, peppered with successful case studies. Venkateswaran talks to Anita Katyal:

What do you mean by Corporate Social Responsibility?

The trouble is that CSR means different things to different people. One end of the spectrum is compliance with laws and the other is being philanthropic. Another way of looking at it is who benefits – the beneficiaries range from employees to suppliers to customers to this amorphous entity called “community”. Complying with the law is the basic minimum to legitimately stay in business. CSR is going beyond that and beyond those to whom you have contractual obligations like employees, shareholders etc to focusing on the most disadvantaged in society. We are also saying that CSR is not just the act of doing good but also the act of not doing bad.

We are absolutely convinced that development is not the exclusive preserve or responsibility of the government or NGOs. Business, too, has a legitimate and important role to play. Thus, involving business is not a luxury but an absolute necessity.

How is CSR different from philanthropy?

Philanthropy as I understand is doing something without expecting any return. CSR includes this notion, as well as legitimises the seeking of a business benefit while fulfilling its responsibilities to society.

What is the potential for the corporate sector and the voluntary sector to work together?

The potential is great. In fact, I believe that they are natural allies as their strengths and weaknesses are complementary. However, traditional suspicion and lack of respect for each other, with good reason, I might
add, has made this difficult to achieve in practice. In fact, it is precisely for this reason that organisations like Partners in Change arerequired.

The two sectors have traditionally had an adversarial relationship. How does one break the ice?

As more and more partnerships happen and get covered by the media, the ice will break. There are, of course, fundamental differences and these will remain. For instance, companies like quantifiable results in a definite time-frame while NGOs are more concerned about the process and less about the timing of the outcome. But these are reconcilable and as time goes on, these will be reconciled. All the actors, including the media, have a crucial role to play if partnerships are to work, and work they must.

Is Partners in Change also trying to change the way the corporate sector conducts its business? How do you convince the corporate sector about becoming more socially responsible? What is in it for them?

Partners in Change is principally concerned with mainstreaming responsibility to the community as an integral part of doing good business. We believe working with the voluntary sector is an effective way of doing this, but not the only way as organisations like TISCO, Lupin and Excel, to name a few, have shown.

There is enough evidence globally that being socially responsible is good for business. There are many arguments, both positive and negative, to support this. Islands of prosperity cannot survive in a sea of poverty -the sea will ultimately engulf the islands. Society’s expectations from business are increasing. Employee morale, reputation etc are important for a company’s survival and being socially responsible provides these edges.

We, as an organisation, do not actively convince companies to be socially responsible. We do not need to. Most companies realise it themselves either through experience or by seeing others. The industry associations are active. And there is this great Indian philanthropic tradition. We need to make it more strategic and less ad hoc.

Won’t the NGOs get swamped by the more powerful corporate sector?

This is a very valid and real concern. What we tell NGOs is that partnership is not about economics but about social development, where, in fact, the NGOs are the stronger partner. It is a question of looking at partnerships from the viewpoint of outputs and outcomes, which is social human development, and not inputs which is resources. There will be hiccups – as the partnership progresses, the relation will become more equal.

Isn’t there a possibility of the corporate sector using or misusing the credibility of the NGOs for pursuing its narrow ends. How does one guard against such situations?

This is a distinct possibility. We tell NGOs who are looking at corporate partnerships to be aware of these dangers; we advise them on how to deal with them. For instance, we tell them to enter into an MoU for the partnership so that the `dos’ and `don’ts’ are clearly understood. We tell NGOs that they should not become dependent on the partner but ensure that all partners meet their obligations.

What are the different options before the corporate sector, to become socially responsible?

Traditionally, companies, NGOs and the government believed that the role of companies in development was to write out cheques. We have tried to show that this is not necessary, that there are many resources which companies have that are relevant to development. The case studies illustrate how companies have made a difference without writing out a cheque. Not that money is unimportant, but simply that money is just one of the many resources that companies have. For instance, managerial expertise is one.

We have argued that companies cannot do just good to the community but harm its other stakeholders. CSR is as much about not polluting and being concerned about people being displaced when a factory is set up beyond
legal compliance as it is about supporting health or education programmes.

We have also argued in favour of respecting the development process in CSR. This means being participative, not prescriptive, creating independent rather than dependent communities and focusing on the excluded and the powerless.

What is the situation in India…to what extent are business houses here receptive to this idea?

There is a great deal of interest among companies in India but the gap
between intent and practice is huge. I believe that most senior company executives understand the importance of being socially responsible at an intellectual level, but few have the vision or the space to break the long
habit of looking at the immediate rather than the long-term. So, CSR is still a fair-weather friend and the first to get jettisoned when times are bad. It is at such times that non-monetary form of involvement thrives. That is why we prefer involvement to donating and forgetting.

Pakistan

Report on the Conference on Indigenous Philanthropy

By Haider Ghani Mian

Aga Khan Foundation (Pakistan) and Carrie LaPorte, Aga Khan Foundation Canada

The Conference on Indigenous Philanthropy – held in Islamabad, Pakistan on October 16 and 17, 2000 – was a seminal point in the ongoing development of the Initiative on Indigenous Philanthropy, a more than two-year effort to strengthen giving and volunteering in Pakistan for social development.

The Initiative on Indigenous Philanthropy

Inspiration and impetus for both the Initiative and the Conference came from one of the Muslim world’s most generous and innovative philanthropists, His Highness the Aga Khan, who has sought to promote indigenous giving and volunteering in the countries of Asia and Africa in which the Aga Khan Development Network (AKDN) works. It was thus as a result of his longstanding interest that, in June 1998, the AKDN convened a group of eminent Pakistanis representing leadership from government, business and civil society and challenged it to seek ways of enhancing giving and volunteering in Pakistan to promote sustainable, self-reliant national development. From this initial gathering the Steering Committee for the Initiative on Indigenous Philanthropy was born.

For over two years, the Initiative on Indigenous Philanthropy focused on two related objectives. The primary goal was to increase not only the quantity of giving and volunteering in Pakistan, but the quality as well. In addition to traditional forms of charity to relieve immediate needs or assist victims of disaster or emergency, the Initiative sought to find ways to direct indigenous philanthropy toward long-term social development. By improving the quantity and quality of indigenous philanthropy, the Steering Committee had confidence that the second goal would be achieved: Pakistan moving towards greater self-reliance and away from dependency on external aid.

At the outset of the Initiative, few indicators of the current state of philanthropy in Pakistan existed. The Steering Committee had no comprehensive picture of philanthropic activities in Pakistan, against which they could set targets and measure the progress towards the Initiative’s primary objectives. Accordingly, the first and most crucial step was to commission original and, for Pakistan, pioneering research on key aspects of giving and volunteering. The Steering Committee also consulted widely across Pakistani society and canvassed international experience for relevant methodologies and models. Involved hundreds of individuals and organizations, and resulted in a wealth of information and materials, published prior to the Conference in two volumes: Philanthropy in Pakistan and Enhancing Indigenous Philanthropy for Social Investment (Aga Khan Development Network: August 2000).

To disseminate and build upon the key findings of the Initiative, the Steering Committee convened the Conference on Indigenous Philanthropy. Leaders and key actors in Government, the corporate sector, the citizen sector and the media from across Pakistan were invited to participate in the two-day event. In addition, notable international experts agreed to lend their expertise to the deliberations.

To focus the Conference agenda, delegates were asked to consider three recommendations based upon the issues, concerns and questions that emerged from the preliminary research and consultative process of the Initiative (box 1).

Box 1: Recommendations

• Recommendation 1
  • “That Government, social investors, business, and citizens’ organizations engage in a multi-stakeholder consultative process to build consensus and confidence in a new, more enabling regulatory and fiscal framework.”
• Recommendation 2
  • “That the media and other agents of public understanding undertake a special initiative to raise public awareness of the citizen self-help movement.”
• Recommendation 3
  • “That a centre for philanthropy be established as a permanent institutional vehicle to enhance philanthropy as social investment.”

The first recommendation addressed the need – unanimously voiced in the consultative process and research – to develop trust and understanding between all stakeholders and to create and environment that encouraged both donors and citizens’ organizations to become better at what they do.

Public awareness of citizens’ organizations engaging in social development is extremely low in Pakistan. For example, not one organization garnered significant recognition in the National Survey on Individual Giving. Thus, the second recommendation stemmed from the recognition that, for the Initiative to achieve its goals, raising public awareness about philanthropy and social development needs must be conscientiously and systematically undertaken. If indigenous philanthropy is to be enhance to support social development initiatives, the public needs to see the choices available to invest their giving most effectively.

The third recommendation went to the Conference with the strong backing of Pakistani philanthropists already in hand. The idea of a Pakistan Centre for Philanthropy was initially raised in several meetings across Pakistan with prominent individual and corporate donors. The response was immediate and enthusiastic: an estimated three years of operating costs for the proposed centre was raised prior to the Conference.

As noted in the original prospectus, the proposed centre would not “do philanthropy” in the sense of grantmaking. Rather, it would provide advice to both grantmakers and grant seekers, offer a neutral forum for dialogue, training and linkages – available to government, the corporate sector and the citizen sector.

Conference Content and Outcomes

The Conference made real progress in terms of bringing all stakeholders together in an atmosphere of trust and respect. Approximately 250 delegates, from all sectors of Pakistani society were represented.

The presence of President Rafiq Tarar and Chief Executive General Pervez Musharraf underscored the important support the Initiative on Indigenous Philanthropy had won from Government at the highest levels. In their addresses to the Conference, both endorsed the three recommendations and pledged to work to help achieve them. In his address to the delegates on day two of the Conference, His Highness the Aga Khan similarly provided both inspiration and practical guidance.

The high caliber of the Conference’s resource people, both from Pakistan and abroad, was especially notable. In individual speeches, a panel discussion, and as special contributors to the working group sessions, these resource people enabled delegates to access a wealth of experience and innovative ideas on moving the Initiative forward.

In addition to disseminating the findings and issues raised through the Initiative, the purpose of the Conference was to bring together the expertise of the delegates themselves. Four working group sessions – each addressing a crucial area of indigenous philanthropy – provided a means to draw out that expertise around core concerns and issues. Guided by a chairperson and facilitated by notable national and international resource persons, each group was charged with developing a report to the plenary on their appointed area: the enabling environment, public awareness, the citizen sector, and social investing. All four chairpersons noted that discussions were lively and that delegates worked hard to develop a considered response to the three recommendations presented to the Conference by the Steering Committee. Not only did the delegates endorse the three recommendations in their working groups, but they significantly elaborated upon them.

The Conference and Initiative received considerable attention by both the print and the electronic media. The publication of four op-ed pieces in the English, Urdu and Sindhi language newspapers was a particularly important starting point for substantive national media coverage and heightened public awareness.

Preparation of the conference proceedings is currently underway. The intent in publishing the proceedings of the Conference and reissuing the preliminary report of the Initiative is not only to share the discussions and outcomes of the Conference with a broader audience, but to present as well the remaining tasks – to stimulate further debate, co-operation and trust-building as the Initiative moves to implement the three major recommendations.

It is also strongly hoped that these proceedings will continue to build awareness of the scope and potential of indigenous philanthropy not only among Pakistanis but also among others in the South who face similar challenges to equitable and sustainable social development. Just as the sharing of international experiences in South Africa, Iran, India, the Philippines and Canada provided Conference delegates with relevant examples and food for thought, this Pakistani initiative, as it continues to progress, may inspire others to take up the challenge of enhancing indigenous philanthropy for social investment.

In that context, it is fitting to end with a note on a theme that resonated throughout the Conference: the tremendous importance of giving to Muslim societies across time and geography and, more specifically, the special relevance of Islamic injunctions on philanthropy to the development needs of today. Nowhere was this more clearly or eloquently stated than in the address made by His Highness the Aga Khan to the Conference on October 17. Speaking to a central point raised by the Conference – the responsible stewardship of philanthropic gifts – His Highness observed:

“The obligation to maintain the highest level of integrity in the management of donated resources, and of the institutions benefiting from them, is grounded in our faith. It is critical to the realisation of the purposes of all gifts, to the continuation and growth of philanthropic giving, and for credibility in the eyes of the public. Muslim societies have the moral right to expect and demand that philanthropic donations be managed according to the highest ethical standards.”

To the best of the Steering Committee’s knowledge, the Pakistan Centre for Philanthropy will be the first philanthropy-support organization to come into being in the Islamic world. It is especially hoped that others in the Islamic world will gain from the experiences of the new centre as well as from the insights that emerged from the Conference.

Acknowledgements

As it seeks to encourage a shift in Pakistan from dependence on foreign aid to self-reliance, the Initiative has been fortunate to receive the enthusiastic support not only from within the country, but also from longstanding partners in development.

The Initiative on Indigenous Philanthropy is one of numerous projects supported through the Pakistan-Canada Social Institutions Development Program (PAKSID), an eight-year program funded jointly by the Canadian International Development Agency (CIDA) and Aga Khan Foundation Canada (AKFC). Its goal is to develop and strengthen the capacity of selected organizations and institutions in Pakistan’s “independent sector” to undertake more effective and sustainable approaches to human development. The broader PAKSID program provided the Initiative with vital resources and a wealth of knowledge and experience upon which to build an innovative new framework for strengthening social development in Pakistan. In addition, the United States Agency for International Development (USAID), through a grant to the Aga Khan Foundation U.S.A. under the Pakistan NGO Initiative, has assisted the Initiative on Indigenous Philanthropy with support for the NGO Resource Centre.

Published proceedings of the Conference on Indigenous Philanthropy will be available shortly. For more information, please contact: Mr. Haider Ghani, Aga Khan Foundation ( Pakistan), House No. 12, Street No. 84, Sector G 6/4, Islamabad, PAKISTAN or haider.ghani@akfp.org