In 2011, Kotak Wealth Management forecast the net worth of ultra high net worth individuals (HNIs) in India would grow five-fold by 2015-16. According to Merill Lynch Wealth Management and Capgemini, India's population of HNIs grew by 21 per cent in 2010, to over 150,000. Between them, they accounted for nearly $600 billion of wealth. The bottom line of profits and wealth clearly matters, but measuring performance in terms of positive social impact is often overlooked.
Business consultancy Bain & Co. found that the HNIs' consideration of their social impact was lacking. It said in 2010 that charitable giving by Indians amounted to only 0.6 per cent of GDP. This compares favourably to Brazil's 0.3 per cent and China's 0.1 per cent, but was dwarfed by, say, the US's 2.2 per cent or Britain's 1.3 per cent. Nearly 75 per cent of charitable giving in the US comes from individuals and corporates. In India, this figure is just 10 per cent. The richest in India give just 1.6 per cent of their wealth to charity.
There are several reasons for this. First and foremost, as the accumulation of wealth is a new-found phenomenon for most Indians, there is a reluctance to give it away so soon. In that stratum of the population, charitable donations do not win social stature – displays of wealth do.
In addition, there is a deep suspicion generally amongst Indians about the misuse of philanthropic monies due to corruption and a lack of transparency. There is also a lack of tax breaks for charitable giving and few formal philanthropic networks exist. These are all surmountable issues – they need to be – because as central and state governments struggle to bridge the gap between a two-speed India, philanthropy from companies and individuals will be ever more crucial in helping the country overcome its deep-rooted social problems.
There are, of course, some notable exceptions to the stinginess of HNW Indians. Over two-thirds of the Tata group is owned by charitable trusts that finance good causes. Azim Premji and Sunil Mittal have set up charitable foundations, and Anand Mahindra recently gave Rs 44 crore ($10 million) to Harvard's Humanities Centre. Bill Gates' top tip at a philanthropy conference for India's HNWs in June this year was “cultivate a culture of giving”.
The Bain report argues along the same lines. As long as donors, networks, the government and NGOs remain siloed, charities and social enterprises will not be able to scale up, and the inherent suspicion about their impact will remain. India's social problems will intensify.
Philanthropy as a sector is evolving rapidly in response to this. Innovation, sustainability and impact measurement increasingly define today's approach to charitable giving and social impact investing. Several foundations and financial intermediaries are emerging, who look for, or provide, investment opportunities for investors to earn financial returns in India, but also to demonstrate the social impact of the investments.
It can be difficult to calculate social returns, but there are some consistent standards emerging. The Global Impact Investment Rating System (GIIRS), for example, provides independent third-party impact ratings. The Impact Reporting and Investment Standards (IRIS) provide a library set of standardised social performance indicators. Organisations are increasingly using this, alongside an measurement method called Social Return on Investment (SROI) to help organisations understand their impact in a robust manner.
And this is where the second line in the “double bottom line” comes in. SROI comes up with a monetary estimate for the social impact a project or organisation has, including converting qualitative impacts such as improved well-being and health into financial terms. It also shows a compelling narrative of where and how best social problems can be tackled. The output is a ratio that answers the question: for every $1 invested in this organisation, how much has society benefitted by?
Imagine the power such comparator statistics can have when an investor or donor (either in India or part of the Diaspora), can determine with great clarity where to best target their philanthropic monies, and why. Imagine the millions of small zakat or daswant donors in India overcoming the barrier of suspicion. Imagine organisations being able to relate SROI to other aspects of their lives, such as to the Gita or Gandhian principles of social returns.
But calculating social returns and these models of philanthropy are new to India. India is a nascent market on both the demand and supply sides. Investors and donors do not yet understand the concept of double bottom line, and investing in smaller social enterprises, that aim for social good as well as profit, is too often seen as charity.
On the other hand, organisations are not “investor-ready” and cannot yet think in a coordinated manner about calculating SROI. As times change, investing and donating on the basis of robust, comparable and transparent assessments of social returns will help make a huge difference to India's social problems.
Pratik Dattani is Managing Director of EPG Economic and Strategy Consulting and also runs a large not-for-profit organisation with strong links to India. He is an economist whose work focusses on helping organisations and investors understand social returns.
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