CSR funds, if deployed wisely, can do wonders for society and a company’s social responsibility. I recently came across a very interesting instrument called returnable grants, which can be used for the deployment of CSR funds.
What do Returnable Grants (RG’s) mean?
Returnable grants are a financial instrument that provides short-term, affordable, and flexible capital (zero interest and zero collateral) to individuals. The returnable grant imposes a moral (not legal) obligation on individuals to repay.
How do Returnable Grants (RG’s) work under the purview of CSR?
1. The donor deploys the CSR funds for the activities prescribed under Schedule VII of the Companies Act, 2013.
2. This grant provides financial support to lower sections of society to sustain their livelihood and make them self-sufficient to meet their own needs.
3. Once they are capable enough to earn their bread and butter, they try to return the amount to the donor. However, this would violate Section 135 of the Companies Act, 2013, so the funds are instead recirculated within the beneficiary ecosystem to provide more financial support.
4. The amount returned, no matter how small, circulates back into the system to support others with similar needs. This design allows returnable grants to benefit 5-7 times the number of individuals compared to a simple grant, thereby promoting economic recovery and creating a circular flow of funds into this philanthropic ecosystem.
5. In this way, without violating Section 135 of the Companies Act and its rules, companies can deploy CSR funds in the form of returnable grants.
Challenges:
- Though these grants will be used by individuals, the burning question still remains unanswered: how can these people become willing to repay the grant efficiently as well as develop repayment behavior?
- This is a moral issue when it comes to paying back such an amount, and inculcating this aspect would need intensive research on behavioral patterns of different demographics.
CSR funds examples through returnable grants in Indian context:
Returnable grants have been embraced highly by donors who acknowledge the transformational potential of RGs and have actively supported their adoption among various stakeholders. For instance,
- Vinati Organics which had over 4000 people receiving R.G.s with a 100% repayment rate.
- Arvind Ltd has enabled 297 blue collar workers improve their lives and create economic opportunities through R.G.s
- S&P Global targeted 1920 street vendors and artisans so as to enable them thrive through R.G support.
- Godrej has dedicated its efforts towards empowering 692 beauty entrepreneurs by investing in R.Gs which aid in nurturing their growth.
Returnable grants provide a new paradigm for funding and financial inclusion that offers leverage and drives impact multiplier. As RGs gain more traction, we are able to see possibilities for enhancing our approach to social challenges from the point of view of the company.
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