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The New Financial Tool India

Inc Can Look At for CSR

Prepared by: Neha Bhyani (127610592013)

Guided by: Saroj vats

Sourse : The economic times(Ahemedabad edition) Tuesday 13th

august

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What is corporate socialresponsibility ?

Corporate initiative to assess and take responsibility forthe company's effects on the environment and impact onsocial welfare. The term generally applies to companyefforts that go beyond what may be required by

regulators or environmental protection groups.

Corporate social responsibility may also be referred to as"corporate citizenship" and can involve incurring short-

term costs that do not provide an immediate financialbenefit to the company, but instead promote positivesocial and environmental change.

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What is social impact bonds?

A Social Impact Bond, also known as a Pay for Success Bondor a Social

Benefit Bond, is a contract with the public sector in which a commitment is

made to pay for improved social outcomes that result in public sector savings.

The first Social Impact Bond was launched by Social Finance UK in September

2010.

Social Impact Bonds are a type ofbond, but not the most common type. While

they operate over a fixed period of time, they do not offer a fixed rate of return.

Repayment to investors is contingent upon specified social outcomes being

achieved and therefore in terms of investment risk Social Impact Bonds are

more similar to that of a structured product or an equity investment.

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In many cases, Pay for Success programs can achieve positive social

outcomes, may create fiscal savings for government, but also involve changes

in funding arrangements that bring risks to service agencies. The assumed

benefits makes Pay for Success politically attractive to governments and

businesses.

Investors and servicers have an incentive to be as effective as possible,

because the larger impact they have on the outcome, the larger the repayment

they will receive.

The Social Impact Bond approach imbeds vigorous ongoing evaluation of

program impacts into program operations, accelerating the rate of learning

about which approaches work and which do not.

Government funds whatworks; thus repositioning government spending to

cost-effective preventative programs.

Attract new forms of capital to the social, educational and healthcare sectors.

Independent evaluation creates transparency for all parties.

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Sirohi district in Rajasthan is unkind to girls. Going up the school ranks, the proportion of

girls to boys keeps dropping, placing Sirohi among the bottom of the heap in gender-gap

districts in India for girls' education.

Safeena Husain of the NGO Educate Girls is looking to change that. She has had anenvious track record in neighbouring Pali and Jalore districts, where 48,000 girls have

been bought back to school since 2010. Sirohi will be different at least in one way. Here,

Educate Girls has embarked on a novel payment-by-results initiative across 200

government schools, which has the potential to overturn the manner in which socialprogrammes are designed, financed and delivered. "The Sirohi pilot has the potential to

change service delivery and implementation standards across the social sector in India,"

says Husain, executive director of Educate Girls.

india Inc which, starting this year, will have to mandatorily direct at least 2 per cent of its

net profit to corporate social responsibility (CSR) activities would do well to watch this

pilot. It's not just about just bringing back girls to school, enrolment or retention, or how

many individuals have gone through a programme;

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it's not about inputs or mere activities, as is the existing norm in the social

sector. In the new scheme of things, the government or donor pays up only on

the improvement in learning the programme achieves; for instance, in terms of

reading and math skills among girls.

At its heart lies a concept called 'social impact bonds'. This complex and

innovative financial instrument comes to India without much of a time lag as it's

still in the pilot stage even in the US, where it is being championed by

investment bank Goldman Sachs, the UK and elsewhere.

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What is philanthropy in business ?????????????????

Philanthropy means "love of humanity" in the sense of caring for, nourishing,

developing, and enhancing "what it is to be human" on both the benefactors' (by

identifying and exercising their values in giving and volunteering) and

beneficiaries' (by benefitting) parts. The most conventional modern definition is

"private initiatives, for public good, focusing on quality of life"

Thus humans were distinguished from all other animals by civilization the

power to complete their own creation through education (self-development) and

culture (civic development), expressed in good works benefitting others.

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Emphasis On Performance

SIBs are actually a misnomer. They are not bonds or debt instruments in the

true sense of the term, but an alluring appellation for multi-stakeholder

partnerships in which philanthropic funders or commercial investors , not

governments take on the financial risk of expanding social programmes. The

model has three principal actors:

the government,

donors or investors, and

service providers (NGOs or social enterprises). A fourth player, a financial

intermediary or consultancy, designs the framework, identifies and brings all the

parties together, and oversees the project through its lifetime.

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Take the first SIB, launched in 2010 and being implemented in UK's

Peterborough prison, with the objective of reducing short-term prisoners from

committing a crime again. Social Finance UK, the intermediary, raised from

philanthropic sources to help rehabilitate 3,000 short-term prisoners to be

released over a period of six years. Under the contract, four NGOs are working

with the prisoners on skills, education and confidence building, during and after

confinement.

At the end of six years, the re-offending rates of Peterborough prisoners will be

measured against a control group of prisoners from other jails not receiving

these services. If the re-offending rates among Peterborough prisoners is 7.5

per cent lower than that for a comparison group, the UK government pays the

investors (the philanthropists) 7.5 per cent on their investment; this can go up to

13.5 per cent depending on better results. However, if the outcome, of 7.5 per

cent reduction is not met, investors lose all their money.

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The key here is: taxpayer money is not wasted on failed programmes; the risk

is transferred to investors in the private sector. Commercial investors in SIBs do

expect financial returns. "The expectation of returns band from 7-13 percent,.

Fit For India Inc Theoretically, the outcome payer can be anyone:

corporations, multilateral organisations, or large philanthropic foundations.

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Philanthropies or individual donors who invest, may not want financial returns,

and may be happy with the social returns; but would like to get their money

back for ploughing back into other projects.

In the pilots being put together globally, a host of philanthropic foundations

are being involved in the process to seed and promote the concept, even in the

US. In India, the timing seems right. The new Companies Bill, passed by

Parliament last week, mandates companies spend at least 2 per cent of their

average net profit in the last three years on nine broad CSR areas.

This applies to all companies with a net worth of Rs 500 crore or more, or a

turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more during

any financial year. It is estimated that this could result in about $2 billion (Rs

12,000 crore) of corporate money flowing into the social sector.

A lot of stakeholders, under the circumstances, would want to know what is

the impact happening with all the money spent. SIBs seem apt under the

circumstances.

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Potential For Scale

In terms of programme evaluation too, the Sirohi pilot breaks new grounds.

Schools will be divided into three groups:

- the schools under payment-by-results funding piloted by Educate Girls;

- schools that receive Educate Girls programme in the traditional upfront

financing (mostly grants); and

-schools that receive no service from Educate Girls.

An independent third-party agency will conduct impact assessment across-the-

board when the programme ends in 2015.

Rajasthan is ideal grounds as nine of the 26 gender-gaps districts are in this

state, where only one of two women can read or write, and for every 100 girls,

only one reaches class 12. the SIB is still a work-in-progress as negotiations

are still on to identify and finalize the outcome payer.

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Impact investors with expectations of financial returns have yet to warm up to

SIBs in India. "This is an ideal model for an organization going to scale; ones

that are tackling large societal issues,"

"The model allows for multiple investors to come together, pool

resources, and achieve scale that may not be possible singly.

"It also fits in with our desire to introduce new financial instruments and

enhance transparency."

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New Capital, New Rules

The quest ion, however, being asked is: wi l l SIBs wo rk in Ind ia?

"When you implement a new idea, there is no guarantee that it will work, "The

SIBs pilots in the UK and the US are progressing well and our attempts to adapt

the model here should succeed.

The global SIBs pilot began in the UK in September 2010 and the one in New

York City was launched in August 2012. While the model lacks a substantial

track record to go by, it is seen as welcoming in a situation where too much

money is chasing too few opportunities, even in the social sector. SIBs create

new investable opportunities that never existed.

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The excitement around the new instrument is quite palpable, but it is also being

recognised that not all societal challenges can be addressed by market

mechanisms. Only where results are clear, measurable and tangible can SIBs

be meaningful. This also brings to the fore the critical nature of impact

measurements and possibilities of things going wrong. Since payments are tied

to outcomes, if disputes on performance audits happen, it can jeopardise faith

in the new model itself.

"Ability to identify what will be achieved, and the right metrics, is going to be

very critical," . "If there is fuzziness here, then you will lose the plot." The other

challenge is the quality and capacity of the NGOs or social enterprises

implementing projects. "There are over 3 million NGOs in India and where is

the impact? "Nonperformers should be out of business."

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