Saturday, 25 March 2017

The Impact of Demonetization on the Social Sector

BSE Sammaan conducted a survey among almost 50 NGOs to assess the exact impact of demonetisation on the social sector. 

Read more for the findings…

With the discontinuance of the old Rs. 500 and Rs. 1000 notes on November 8, 2016, we saw the entire nation reeling under an immense cash crunch in the system, which caused inconvenience to many.

NGOs were equally affected as often times, salaries and vendor payments, were made mostly in cash. Regular work for many in the sector had become difficult. Those working in rural areas were impacted the most, as some programs - like those run by self-help groups (SHGs) - were mostly conducted with cash payments.

BSE Sammaan conducted a survey among 50 leading NGOs to assess the impact of demonetisation on the social sector. The survey asked eight questions, and some of the results were quite surprising. While many NGOs had already put cash-less systems in place, and were working efficiently with their funds. Still quite a few, unfortunately, saw many disruptions in their daily operations.

One NGO said: ‘We can all see that demonetisation has affected the routine life of urban people, double that effect has been experienced in the rural community… It has affected the social sector as well... As per our observations, it will take six months or more to get set and run the programs smoothly once again.’

8 key findings on how demonetisation has affected the funding and working of 50 leading NGOs

1. How much of your funds were you receiving in cash prior to demonetisation?

Unlike political parties, NGOs sure have their systems in place… You’ll be surprised to know that 71.4 percent of the NGOs received less than 25 percent of their funding in cash, while 8.2 percent received more than 75 percent of their funding in cash. The remaining 12.2 percent received 25-50 percent of their funding in cash. 

This is a positive for most funders as it shows greater accountability in the systems of NGOs. Most accept only cheque payments, allowing for greater transparency in their workings.

2. What has been the change in the inflow of donations in cash after demonetisation?

There was a striking polarity in the answers to this one. An equal number of NGOs i.e. 34.7 percent, said that donations had decreased,while the exact same number said it remained the same as earlier. 
The rest 28.6 percent said demonetisation had no impact on their donations. 

It’s safe to say that atleast one third of the NGOs have been hit by funding post demonetisation. This has led to many of their programs getting stalled or taking much longer than scheduled.

3. How will demonetisation impact the amount of donations you receive in the future?

The response to this question was quite positive: 57.1 percent said there will be no change; 18.4 percent felt it would decrease, while 16.3 percent hoped it would increase. The remaining 8.2 percent felt the criterion would not be applicable to their donations in the coming year.

4. What percentage of your total expenses were spent in cash?

59.2 percent said that less than 25 percent of their expenses were in cash. 24.5 percent said that 25-50 percent of their transactions were in cash, while the remaining 14.3 percent said that 50-75 percent of their payments were made in cash. 

Different NGOs work with different beneficiaries and have different needs for their programs, thus showing a distinct variation among them. But a large majority seem to have eliminated cash transactions from their systems, a big positive for a space which has often been blamed for lack of transparency. 

5. Which of the following areas were you spending the most amount of cash?

This question got mixed responses. 42.9 percent said the majority of their expenses in cash were directed toward miscellaneous expenses. 28.6 percent said their cash went toward salaries, while 22.4 percent spent most of their cash on vendors.

The early days of demonetisation saw withdrawals amounts from banks being limited. This reduced the spending of the NGOs too... Even petty cash for tea and stationery was in short supply then. 

6. Are you facing any difficulties in meeting your expenses after demonetisation?

46.9 percent said they were not facing any difficulties, 42.9 percent said, yes, they were indeed troubled by the policy. 10.2 percent were still not sure about the exact impact of demonetisation on their daily operations. 

When asked to elaborate on the difficulties faced, some NGOs said their vendor payments were hampered, as a result of which programs got affected. A few also said that volunteers and transport service providers were resistant to taking non-cash payments. A number of NGOs in rural areas started disbursing payments in cheques. This led to delays in their work, as beneficiaries had to travel far, and stand in long queues to withdraw their daily earnings… Sometimes these workers lost a full day, consequently losing their daily wage for that day too. 

7. How do you plan to tackle cash transactions in the future?

Most NGOs spoke about moving their cash transactions to cheque and online transfers. They also wished to use vendors that were accepting online transfers. In true social spirit, some NGOs started training beneficiaries in digital banking and online payment methods. 

Some NGOs prided themselves on having their cashless systems in place, and using 100 percent cheque, saying - ‘We make all attempts to pay through banks where possible’. The rest had a bare minimum of cash transactions...mainly for the purpose of local conveyance and sundry purchases. 

8. What do you think the impact of demonetisation will be on the social sector in FY 2017-2018?

A surprising 44.9 percent said it will be positive, 28.6 percent said it will be negative, while 26.5 percent said it was not applicable.

Some NGOs already receive their donations through cheque and online transfer, and hence were not worried about raising funds for their programs. But they felt those programs that require cash transactions would probably take some time to get back on track.

A slowdown in the next 12-18 months was expected -‘A new way of finance is being incorporated, and it will take time to adjust,’ said one NGO. The larger NGOs, with regular donors, would face minimal impact, was the view of some. While some were optimistic and believed it would increase transparency in the social sector.

In a sector that is already subject to so many variables, like funding, governmental regulations, availability of volunteers and other resources, demonetisation was yet another blow to it. But its spirit remains untainted and the conviction to work and create positive change is as strong as ever… The social sector is indeed ‘one that brings tremendous changes at low cost’…rightfully said by one of our survey participants.

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