4 days ago
USAID has been dismantled. CSR funds should be used in research and innovation
Written by Akshay Saxena & Vandana Goyal
On March 28, the US announced its decision to dismantle the United States Agency for International Development (USAID). Over the last decade, USAID has consistently invested more than Rs 1,000 crore every year in projects related to health, sanitation and energy in India. This move may be the first systematic decline in philanthropic capital available to Indian not-for-profit organisations from the United States. Notably, despite its significance, foreign funding makes up only 18 per cent of all philanthropic giving and is likely to be only 10 per cent of all philanthropic giving by 2030.
India was the first country to mandate Corporate Social Responsibility (CSR) through its Companies Act, 2013. Companies with a net profit of Rs 5 crore or more need to donate 2 per cent of their profits to social causes. India's CSR ecosystem contributes over Rs 30,000 crore to philanthropy today and is likely to contribute over Rs 50,000 crore by 2030, making it the single largest funder of not-for-profit organisations in India. And yet, the loss of USAID funding has felt like a seismic shift in the development sector. The key to this lies in what USAID has funded over the years, not the quantum of funding.
Most not-for-profit organisations require three pools of capital: Programmatic funding (typically for direct implementation costs), administrative funding (for fundraising, offices and senior management), and funding for innovation and research. Innovation funding allows early-stage entrepreneurs to try new models, collect evidence, and publish research. Most CSR and UHNI (Ultra-High-Net-Worth Individuals) grants continue to be single-year grants that are heavily restrictive and linked to very measurable outcomes. Not many fund research, innovation and risk-taking.
In addition, most large not-for-profits work closely with the government to pilot innovation. When these innovations succeed, there is often a need for large-scale, catalytic funding, which has also been traditionally hard to get from CSR and UHNIs.
On the other side, the majority of USAID grants funded innovation: From early pilots to research studies, to the scale-up of technology-led initiatives in partnership with the government. It also funded massive system strengthening efforts focused on building capacity within government health systems, often in collaboration with US universities and medical schools. It is this funding that many not-for-profits find hard to replace.
This is not dissimilar to India's venture capital industry in the 2010s. The early investors in India's unicorns were mostly foreign funds. As Indian entrepreneurs exited companies and fund managers returned capital, domestic capital has gradually replaced foreign investors. The same will need to happen with innovation funding in the impact sector.
Our experience at Avanti Fellows (an education NGO that we co-lead) is testament to the fact that this is possible. Today, a majority of our innovation, research and systems change funding comes from CSR. This includes significant investments in open-source technology platforms, curriculum and state capacity building. We have benefited massively from the efforts of evangelists within large companies who have painstakingly educated the board, secured funding (often small) for innovation and shown the catalytic impact this funding can have on large government school systems. The majority of our CSR commitments are multi-year, giving us the ability to make long-term investments. We are also seeing increasing willingness for multiple partners to co-invest in large-scale programs, allowing more flexible funders to mitigate some of the start-up risk on new programs. The tide is definitely turning.
This trend needs to accelerate. India already has the world's most progressive regulation on corporate giving and the world's most innovative social change organisations. We need to work together to take more risks so that corporate India can help play a leading role in solving our country's biggest problems.
The writers are co-CEOS, Avanti Fellows, a not-for-profit organisation that provides equitable access to STEM education for students from lower-income communities in India
