Over the past few years, I had been receiving calls from various Non-Profit Organizations (NPOs) requesting for donations to help their cause. Feeling a sense of compassion, I would gladly write a cheque and be overwhelmed by the thought of about how I had contributed towards the well-being of humankind. However, after writing a cheque to a particular NPO, I started receiving phone calls every week from the same organization. Assuming that the NPO knew that I was not a billionaire, I began to wonder – do they have the resources to make such redundant efforts?
Economies of Scale: An illustration
The money that these NPOs need to carry out activities comes primarily through either government grants or household and corporate donations. I will focus only on household donations in this article.
If an NPO wishes to solicit a credible donation amount it needs to make a large number of telephone calls. For that, it needs to incur infrastructural costs, work-force costs, training costs and acquire the necessary phones and related equipment. Suppose an NPO manages to make 10,000 calls a day garnering Rs. 50,000 after a mammoth effort. What if someone else could do this with ease? Professional Telemarketer Fundraisers – Bingo!
A telemarketing company (TC) can make use of economies of scale, professional staff, experience and a huge infrastructure to approach donors efficiently. Of course, it would not be affiliated with a single NPO: Affiliation with multiple NPOs would result in economies of scale. If the TC manages to make 50,000 phone calls a day and raise Rs. 250,000, it might take a cut of Rs. 150,000 to cover its operating expenses and earn profit for its shareholders. A maximum of Rs. 100,000 (40% of the donated amount) goes to the NPOs.
NPOs get more funds and the TC’s business makes hay. Everyone is happy – Really? What about the poor donor who was naive in thinking that 70-80% of his contribution would go in aiding the actual cause? Feeling deceived, cheated, angry or foolish?
If a smart donor dared to ask the telemarketer about the amount of contribution that will eventually reach the charity, the telemarketer would smartly tell the donor exactly what he needs to hear: 80-90% of the contribution amount.
Though telemarketing companies have been in existence since the 1970s, they started flourishing over the last decade and a half due to the telecom revolution in India, a wide range of products that people do not need to buy, and a huge growth in the number of new NPOs. A report published in March 2012 by the Central Statistic Office (CSO) shows that the number of NPO registrations increased from 5.5 lakhs during 1980s to 11.22 lakhs in 1990s and 11.35 lakhs during 2000s. A number of these NPOs tie up with TCs for fundraising activities. The TCs usually charge a substantial percentage of the donated funds in lieu of the services provided. Owing to the booming growth of NPOs in India, the scenario seems just ripe for these companies to start exploiting unaware, emotional donors. The mushrooming of TCs catering to many sectors and their excessive phone calls to customers led TRAI to implement a ‘Do Not Disturb’ registry of phone subscribers who cannot be approached by telemarketers in the absence of permission from the subscriber.
NPOs in India usually overspend on overheads. A 2006-07 government report revealed that out of $2.15 billion in foreign aid received, around $680 million was used for organizational expenses. Also, the credibility of NPOs, particularly those which allow its patrons to avail tax deductions, has come under severe public scrutiny. There have been allegations of money laundering and fund-misappropriation against some well-known trusts. Lack of transparency in public disclosure of the accounts, and non-standard accounting practices have allowed NPOs to be a part of such malpractices. The government has been able to probe and take action against just a few hundred trusts out of millions that exist.
- The donors get irked due to repeated calls from numerous telemarketers representing various NPOs. This problem is accentuated by mismanagement of records while outsourcing to telemarketing companies and absence of due diligence by the TCs.
- Because of misappropriation of funds, the compassionate donors feel betrayed and lose motivation to contribute to genuine NPOs.
- Lastly, because of misappropriation of funds by NPOs and money laundering, the government loses tax revenue.
Greater regulatory oversight and public disclosure of flow of assets in this sector is required. Policy changes should be aimed at achieving the same:
- The TC should be required to disclose its name and the contractual agreement with the NPO to the prospective donor.
- Feedback should be taken from the patron on the frequency of donations he wishes to make in a year and this feedback should be strictly taken into account before making repeated calls.
- Ideally, no minimum contribution amount should be defined by the NPOs. A person should be free to make a contribution of any amount to any cause he wishes.
- NPOs’ should be forced to disclose their accounts to the public using standard accounting practices, and their compensation to TCs should be unambiguously mentioned in their communication.
“Taru Agrawal is a PGP1 student at IIM Ahmedabad and a member of the Consult Club. He is a graduate from IIT Kanpur in Mechanical Engineering, and worked at Deutsche Bank before joining IIM Ahmedabad.”