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General

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.

  • AP says:

    Oxfam or such type of NGO charities are too much publicity hogs and what is probably costing them is the money paid for all this collection efforts.
    There are very effective NGOs who are typically remain under the radar and doing excellent work in the underprivileged areas, especially tribal areas. They do not go ballistic about what they do, but use word of mouth strategy and for all practical purposes once somebody donates to them, they keep donating every year, because they have genuine work to show to the donors, thanks to the tireless work of the members of these NGOs.
    And these NGOs never feel any shortage of donors.

  • Samarth says:

    you can even look at rangde.org for microfinance lending they are kind of recurring donations as you give very low rate loans rather than donating.
    They take some money out. however it looks some what transparent. I have not looked at the annual reports or any such things. Just that I have met founders before they were starting out and they came across as nice people who wanted to do some work.
    Samarth

  • MK says:

    I donate to causes which personnally i find are worthy and visible(to me that is), i have donated to ramakrishna mission, smile train and local temples who provide anna dhanams. This corporate charity stuff is not in the Indian ethos, so for the question on “Why don’t Indians donate?” is a moot question, i have never donated to them and don’t intend to. I feel indian ashrams and homes are safe bet. Maybe as a collective group we don’t want to donate to the western concept of ‘charity’, so we should not be measured in a yeardstick which is western in nature.

  • aclarke says:

    – this is a nice take on donations
    http://www.jamesaltucher.com/2011/04/10-reasons-why-i-would-never-donate-to-a-major-charity-or-how-to-be-a-superhero-part-2/
    – also see this to directly influence a cause
    http://www.microgiving.com/
    – another issue is charities may put it in debt fund or something and use the interest for expenses. now this is very inefficient as inflation > interest. Further the corpus becomes huge and tempting and runs the risk of huge fraud.
    – also i dont think one *need* to donate or anything. it may be good, thats all.

  • Nash K says:

    Such high expense ratios make me question the whole rationale of organised/professional NGO’s.If more than 50% of what I donate goes towards chasing 9 other people who are not interested in charity, I may be better off finding some other means of channeling my contribution. I’m increasingly convinced that it may be better to “keep it small and local” – contribute to the orphanage in your neighbourhood, the temple/mosque/gurudwara if it has a program for feeding the hungry, sponsor books or fees for some children at the local municipal school… I guess a lot is possible, if we are willing to really engage – rather than just mail a cheque once in a while.
    Nash

  • PS says:

    MK – Well said. Although my choice of institutions to give to might be different from yours, I agree that giving in India cannot and should be measured by how much is given to NGOs alone.

  • Farry says:

    Being a fund-raiser and activist. Here are my two bits.
    The costs are high not because of the inefficiency of the people doing fundraising, they are high because the middle class does not care enough.
    One might choose to donate to smaller organisations/individuals, however then one will also have to be content with the fact that the work being done by bigger organisations will not happen.
    Individual fundraising just started a few years back, we are continuously optimizing our spends, but it will take some time and a change in attitudes for the situation to change.

  • jyothi says:

    These are my observaions about the money spent by Oxfam :
    1) Every year they have a gettgether wherein entire team of Oxfam spends minimum 5 days in 5 star hotel and they call it as Annual Retreat. In 2010, they had this event in Goa and in 2011 they had it in Royal Orchid, Jaipur. I dnt understand how they have so much money to spend on the entire staff to stay in 5 star hotel for 5 days. Do they spend it from what we donate? Do they really spend on good cause that they mention at the time of collecting the money from us?
    2) Recruitment : They dnt know what post they need and whether they really need it or not. They announce a post and then they dnt hire anybody. Money is wasted again here.
    3) They are opening offices in different locations across india. On what financial basis they do this? do they use donation money or they take loan?
    Anyways after knowing all these things, I feel like not donating money to NGO whose work does not happen in front of me. I would donate money to a needy whom we can see using our money.

  • pk says:

    Often many of the foreign NGOs also typically have a religious hidden agenda with a great secular front/mask.
    I dont know about OXFAM but I am not sure of its entire agenda.
    As long as I dont know the organisation and dont involve myself in it, I dont feel like donating. I donate only to organisations where I know the team well and interact with them on a regular basis and involve myself in their activities as a volunteer, etc.

  • KP says:

    I used to donate to a NGO regularly at frequent intervals when some gains were made in the form of increment or bonus etc.
    I am staying in Middle East and used to get calls from their office in Delhi to remind me to donate.
    Now, I understand that most of my money was spent on such calls and mailers which are regularly received by post.
    However, since last year I stopped donating and the same funds are donated to some worthy cause whenever I visit India.
    Now, the same money is donated to some local area NGO whose work is visible and one can feel and see the joy in the eyes of the receiver. This gives more satisfaction and in fact more money is donated. Seeing this our neighbours have also pooled in their share.
    For e.g. there is a street school where children from nearby areas who do not go to school are gathered by some activists and engaged in some meaningful activity for 5 days in a week for couple of hours. We checked with these individuals and arranged to give notebooks, pencils, caps etc and sometimes biscuits and milk.
    The cost of collection for institutions like CRY and Oxfam maybe high since the individuals involved maybe working for salary and not social workers. No doubt institutions like Cry and Oxfam do make a difference and are doing a great job, but, if they can cut expenses it will much appreciated.