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Oxfam's Response To Expense Ratios

Oxfam’s CEO, Nisha Agrawal, connected with me and over a few emails put in her view of the expense ratio, in response to my article on Oxfam’s cost of just fund raising being 70%.

The emails are lengthy so I’ll just summarize.

  • Out of the 5 cr. spent, about 1.4 cr. was on "initial infrastructure cost of setting up new fundraising offices. During 2009-10, Oxfam India started six new fundraising offices that will generate income flows for years to come". On further questioning, she revealed that these offices aren’t owned, they’re rented. The initial cost was spent on infrastructure like furnishing, computers; but I am not sure how this can be loaded into one year, especially when the annual report says the expense has been capitalized. (You can either fully expense an asset, or capitalize it and depreciate it over years; you can’t do both). So this expense is most likely of a recurring nature, which means it *is* fundraising cost – but probably they will be able to lever it and raise more funds later.
  • The remaining is still 50% of funds collected – around 3.6 cr. According to Nisha, it costs this much, at least. I’ll quote the para here:

If we remove the capital investments and the costs of new product
development, the recurrent cost of fundraising (salaries of fundraisers,
rents of fundraising offices, electricity, water and phone bills etc) comes
to around 50%.  This is still high (though not as high as 70%) and the
reason has largely to do with the huge efforts it takes to generate funds
in India, as explained below.

We raise funds from individuals through either face-to-face interactions or
through tele-calling (calling them over the phone).  For a single, average
donation of Rs 2850, a typical fundraiser has to meet about 100 people
.  In
a given day, they can meet on average, at most about 60 people, of which
only about 10 are interested in having a discussion on the issue.  This is
a very labor intensive exercise. Similarly, the people in our tele-calling
team make about 107 calls to get one donation, which averages around Rs.
1600.
It is a time consuming and tough process to reach for the support of
the individual donor.

  • This sucks – the cost of getting Rs. 2850 is a more than Rs. 1,500! Half your money goes to the telephone companies and the (good) folks that are collecting money.
  • I said that’s like hiring an agency and telling them collect Rs. 100 for us, and give us Rs. 50. Nisha said "Most NGOs that are fundraising in India through fundraising agencies are paying those agencies well over the 50% that it is costing us and that is why we decided to do it in house.".
  • People in India don’t give regularly. They prefer one time donations. That means the recurring cost of collecting money is huge because you have to do the convincing all over again.
  • They want to approach corporates, but not many other than the Tatas give to people like Oxfam (though there is social work directly done by the corporates themselves).
  • They really want to maintain their relationship with individuals, even if it continues to cost them a lot of money, because the rapport with individuals matter.

My thoughts: These are good answers, but it’s not doing anything to solve the problem. But the problem isn’t Oxfam’s alone, it’s also the mindset.

  • Why don’t we choose to give regularly? Why just one-time?
  • Why is the average donation just Rs. 3000? That’s horribly small today.
  • Why does Oxfam not consider a better distribution network than one that has 50% costs?

Most of us *need* to donate, and want to. But because of such data, we don’t. That’s also just as wrong – not donating when you can is a horrible horrible thing. We are incredibly lucky, we internet-using, upper middle class crowd, for having been born at the right time, in the right place, to the right parents. Some people don’t have that luck. We took some of that luck away because there’s only so much luck avaiable, and we got a disproportionately high amount. At the very least, we could give a little. (Or heck, help someone set up a business – better than donation!)

If we can decide that we’ll donate 2% of our income, the 20 lakh per year earner would need to donate Rs. 40,000. That’s 3,000 per month. And since most NGOs give you tax exemptions, you pay with pre-tax money (Rs. 100 is like donating Rs. 70). It’s something to think about.

On a different note: I have proposed to Oxfam that they might consider using the financial distributor route, and offer them a commission of even 10% if needed.

Disclosure: I’ve given to Cry earlier but stopped that and last year was donations directly done to causes I liked. With that high an fund raising cost, it might be better to donate directly to a charity that you find and do actual work (or simply take the Oxfam annual report, find out where they’re giving and give them direct).

Note: Freakonomics tells us why ranking charities by Admin Expenses is a bad idea. They say that the average admin+fundraising cost of "good" charities, those that are ranked highly on the quality of work they do, is higher than those that are not-so-good. The difference, in terms of fund raising costs to total expenses, is 14.7% for not-so-good charities versus 17.4% for good ones – and in terms of fund raising costs, 7.3% versus 5.4%. These numbers are different from my context (of finding out the effectiveness of fund raising from individuals for a charity like Oxfam), but at their levels of difference it hardly matters (2-3%). Even they admit that large expense ratios are not good.

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