McKinsey & Company

McKinsey on Society

 

Voices How We Give

Designing Indian philanthropy for impact

Ramesh MangaleswaranDirector
McKinsey & Company

Guides organizational transformations for clients in the public, private, and social sectors across Asia.

Ramya VenkataramanMcKinsey & Company

Leader of McKinsey & Company’s Education Practice in India.

The TakeawayOur research found that Indian donors provide disproportionate funding to a limited number of popular causes, while many other critical needs attract limited support. Indian donors also tend to prefer direct interventions designed to help beneficiaries immediately, as opposed to more indirect interventions that seek to build organizational capacity at scale. Both in India and elsewhere in the world, donors should align their interventions with the needs of a particular sector, through a demand-supply analysis, and devote at least part of their portfolios to indirect, capacity-building initiatives.

INTRODUCTION

Charitable donation levels in India fall below the global average, according to several studies. Many attempts are being made to increase philanthropy in the country. They range from retail marketing efforts and outreach to high-net-worth-donor circles to, most significantly, a bill recently approved by Parliament that requires companies to contribute 2 percent of their profits toward corporate-social-responsibility programs.

In parallel, recent dialogue on the impact of philanthropy has focused mainly on improving program execution and measuring results. In between these two steps (“how much to give” and “how to ensure quality execution”) we see a critical step: making choices on “where” and “how” to give, which we call “designing for impact.”

With respect to where and how to give, our research on the Indian philanthropy market identified two important issues. First, donors provide disproportionate funding to a limited number of popular causes, while many other critical needs attract limited support. We found that around 90 percent of Indian donor contributions are concentrated in fewer than ten sectors,1 including primary education, primary health care, and disaster relief. To be sure, these are also among the top sectors supported globally. In more developed philanthropic markets, however, we find somewhat greater breadth of funding. In some cases, we also find more complementarity between government and philanthropic spending with respect to the sectors covered.

Second, Indian donors tend to prefer direct interventions designed to help beneficiaries immediately, as opposed to more indirect interventions that seek to build organizational capacity at scale. In the educational sector, for example, a more direct intervention would be funding a local school. A more indirect intervention would be establishing a training institution for teachers or helping government education agencies improve their monitoring and data-collection programs.

“90% of Indian donor contributions are concentrated in fewer than 10 sectors, including primary education, primary health care, and disaster relief.”

In our interviews with leading Indian donors and experts in the philanthropy sector, we found widespread agreement that both direct and indirect interventions deserve support. Donors and experts also agreed that the choice between direct and indirect interention should be based on the nature of the gap in each sector. Yet as we classify philanthropic interventions in the Indian market on a “most direct” to “most indirect” spectrum, we find a disproportionate focus on the direct-intervention modes, leading to significant gaps with respect to critical indirect modes.

This article, based on a recent McKinsey study, provides a starting view of the most critical funding gaps in India’s philanthropic landscape as well as the nature of the prevailing gaps in different sectors. We have developed a simple demand-supply rating system that donors can use to both identify underserved sectors and define the nature of the gap in each sector. Our research also suggests that Indian donors should consider increasing their support for indirect, capacity-building programs that can generate broader impact for the rupee. While our findings are specific to India, a similar approach is likely to be relevant for philanthropists in other markets.

WHERE THE GAPS ARE

India has a long tradition of philanthropic giving, with all religions promoting the concept of charity. Until the 1800s, giving in India was largely religious in nature and motivated by the search for individual salvation. Later, philanthropy also began to be directed toward social causes such as education and women’s rights. Throughout the 20th century, leading Indian industrialists established foundations and other charitable institutions of national importance (for example, the Indian Institute of Science, catalyzed by the Tata Group), some of which were partly inspired by the country’s freedom movement.

And yet, the Indian philanthropy market continues to suffer from critical funding gaps. These gaps can be divided into three main categories according to our demand/supply rating framework. So-called quantity gaps exist when demand for a service is high while supply is low. Leading examples include malnutrition, water, and rural infrastructure. Quality gaps occur when supply and demand are reasonably well matched, yet the quality of outcomes remains low. In India, primary health care and primary education are both good examples of quality gaps.

Niche gaps, finally, happen when overall demand for the service is relatively low because the affected population is small or the intensity of resources needed to address the issue is limited. In India, notable niche gaps include judicial reform and special-needs education.

It is important that donors understand the nature of the prevailing gap in the given sector (quantity, quality, or niche gap). This will help determine the type of intervention that is most likely to be effective. We advise donors to explore a wide canvas of issues before committing support to any particular cause. Donors should go well beyond their personal experience, and consider using a demand-supply rating system to identify promising sectors.

Filling quantity gaps

When addressing quantity gaps, one option is to help solve the problem in a small geography through a direct intervention. Another option is to work with the government to address the problem at scale by providing relevant advocacy and implementation support. A third option is supporting innovations that reduce the cost or resource intensity of the solution. One example of the latter option is the Gates Foundation’s recent efforts to promote low-cost technologies in areas such as agriculture and electricity generation, both globally and in India.

However, the majority of donors participating in sectors with quantity gaps typically play only the first role of trying to solve the problem in a small geography through a direct intervention. A common assumption is that if multiple donors address the same problem in different geographies, the problem can be solved for the entire country. This is typically not a realistic approach to filling quantity gaps.

Filling quality gaps

In some sectors, supply is not an issue but the quality of service falls short. For example, India has a large primary health-care network in place that receives significant government funding. However, there are significant quality gaps with respect to crucial parameters such as speed of response to emergency cases. Donors can address quality gaps by partnering with government or other providers to enhance the quality of the current supply, at scale. Appropriate donor roles include capability-building initiatives that squarely target quality.

In India, the Emergency Management Research Institute (EMRI) is a prominent example of donor interventions designed to fill quality gaps. Donor funds pay for technology support and management-skills development at EMRI, which leverages the government’s primary health-care infrastructure along with funds from the National Rural Health Mission.

In the case of quality gaps, it is, of course, crucial for donors to ensure that their interventions enhance service quality significantly. A direct intervention that serves as a model and resource for the system could also be relevant. However, a common pitfall is donors supporting the addition of average-quality supply into the mix, which may be of limited value.

Filling niche gaps

Certain sectors of the philanthropy market feature low overall demand. Examples include conservation of traditional arts and crafts, rehabilitation of criminals/prisoners, and special-needs education. In some cases demand is low because the affected population is small. In other cases the resource intensity required to address the problem is small. And sometimes the type of need is simply in the “emerging” category. They are relevant causes nevertheless. In these cases there are often opportunities for a relatively large donor (or group of donors) to address the problem at scale through direct interventions.

DIRECT VERSUS INDIRECT INTERVENTIONS

Philanthropy in India is heavily weighted toward direct approaches such as providing commodities, building infrastructure, or directly running operations. Our research found that such “direct to beneficiaries” interventions receive around 60 percent of donor contributions. Service interventions such as teacher training received another 25 percent of all contributions, leaving only 15 percent for more indirect approaches.

Interventions that involve working with the institutions that serve beneficiaries at scale account for about 12 percent of this last 15 percent. They include capacity building in government systems, supporting entrepreneurs and making markets work, and driving public-private-partnership models. The most indirect interventions—those designed to optimize policies or frameworks governing institutions that serve beneficiaries—receive only about 3 percent of total donor support.

In our interviews, an overwhelming majority (90 percent) of donors and experts believed that both direct and indirect interventions are important for the overall transformation of a sector. Many respondents also agreed that the choice of intervention mode is highly dependent on the nature of the gap in a particular sector or subsector.

In addition, the choice of intervention depends on the donor’s “theory of change” for the given sector. For example, the donor might believe that the government should provide a particular service and needs support in terms of quality or other aspects. In this case, a complementary intervention could be supporting government-capacity building. Another theory of change might be that entrepreneurs will provide the service with consumers paying for it at scale. Here, an appropriate intervention could be providing seed funding for entrepreneurs.

Top donor reasons for not focusing on more indirect modes of intervention include lack of measurability, insufficient visibility or association of name, concern about “taking on the system,” few examples of success, and lack of relevant knowledge and research. These are all valid concerns. We nonetheless recommend that Indian donors at least double their commitment to more indirect interventions that can drive larger scale, sustainable change, to between 30 and 40 percent of their portfolios from the current average level of 15 percent.

One useful strategy is to pair indirect interventions with direct programs that can be used to test or refine specific elements. In all cases, direct interventions will ideally serve as models or experimental beds that generate learnings and resources for more indirect interventions. Finally, whether the intervention is more direct or more indirect, it’s important to build in relevant success factors early. For more direct interventions, these include measurement, scalability, specialization, and the ability to grasp opportunities to evolve toward indirect programs that can scale up. For more indirect interventions, success factors include early measurement through input-outcome linkage, scale at low cost, and clarity on relative roles.

The rise of indirect interventions

As donors, foundations, and operating charities evolve in India, there has been a significant shift toward indirect interventions. We find compelling examples of this evolution in the education and health-care sectors.

The Azim Premji Foundation has focused on improving the quality and equity of rural education in India since 2001. The foundation started with a mix of supporting and system capability-building interventions. These included implementing activity-based learning methods by providing teacher coaches in some districts of Karnataka. At a system level, the foundation supported capacity-building interventions at District Institutes of Education and Training in several states, worked with a state government to establish an assessment mechanism for schools, and so on.

Based on what it learned from work on the ground, the foundation is now largely focused on solidifying and strengthening its indirect interventions. These include setting up a university that aims to provide leaders and experts in education and development, launching district institutes that can build the capability of the government school system more deeply, and developing assessment and accreditation mechanisms for the broader system. At the same time, the Azim Premji Foundation has added a select direct intervention to the mix by building its own schools to serve as models and resource hubs.

In the public-health sector, the Bill & Melinda Gates Foundation began work in India in 2003 with Avahan, its anti-AIDS program. Initially, the foundation focused mainly on direct interventions in health care, with support from select indirect interventions such as building HIV/AIDS awareness. The Avahan HIV prevention program is now overseen by the Indian government, a welcome transition that took place over time. Meanwhile, the foundation has started supporting more indirect capability-building programs such as technical training in direct skills and provision of job aid, along with concurrent monitoring and data systems.

The foundation also tries to keep increasing the influence and capacity of its indirect interventions. For example, a particular training program might be run by a nongovernmental organization (NGO) initially. However, the program would then be handed off to a government agency, with the NGO or Gates Foundation playing a supervisory role. Two years from now, the foundation aspires to devote 70 percent of its focus to indirect interventions, with direct interventions serving only as pilot projects.

CONCLUSION

We have four thoughts that may help donors make effective choices on “where” and “how” to give. We advise donors to explore a wide range of sectors to start, going well beyond personal experience. Donors should also form a clear view on the nature of the funding gap (quantity, niche, or quality gap). Identifying the gap will suggest the most effective type of intervention.

Having identified the sector they wish to address and the prevailing gap in that sector, donors should apply their own “theory of change” to the problem at hand. Over time, we advise Indian donors to ensure that at least 30 to 40 percent of their portfolios are dedicated to more indirect interventions that can drive larger scale, more sustainable change. Finally, irrespective of the type of intervention, donors should build in relevant success factors early.

Given that these recommendations suggest a systematic approach to making decisions about where and how to give, they are not only relevant for donors in India. They can also apply to donors elsewhere in the world, in both emerging and developed markets.

About the Demand-Supply Rating Framework

We analyzed more than 50 subsectors as part of this effort. This framework uses six demand-side factors and three supply-side factors. The demand factors include percentage of unaddressed population, level of quality or outcomes vis-à-vis global benchmarks, type of need (that is, how basic), a view of whether the market could work automatically, magnitude of resource needed (based on size of population to be addressed and resource intensity), and number of operating entities (therefore causing demand). The supply factors include total current spend by government per annum, total current spend by donors per annum, and diversity or stability of spend. Each subsector was rated on each parameter using a rating scale of 1 to 4, leading to a total demand score and a total supply score.


(1) This does not include corporate social responsibility (CSR) efforts, which are by definition more diversified when it comes to sector, as CSR most commonly involves providing a combined set of services to communities near key locations of the company.

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