My trip to Yapahuwa
I just completed an assignment for an international networked organization. They are in the process of establishing and sustaining a national level sister organization with district level branches which will belong to the same network.
The assignment was to critically look at the activities undertaken to sustain the district level branches. Well basically looking at the resource mobilization of each branch.
When considering resource mobilization for the development sector one automatically recalls the telethons and other fundraising activities done by charities to raise millions of dollars; quite similar to the ones that are going on for the Haiti earthquake relief operations.
However resource mobilization in the 3rd world is quite a different matter. It is fundamentally handicapped due to the following reasons.
- Most INGOs and Local NGOs operate in the 3rd world as project implementers. Therefore their articles of association / constitutions do not provide for resource mobilization (self generated / self raised funds).
- Due to above most states (in Asia) do not recognize them as registered charities that qualify for fund raising which is tax exempt.
- They are only allowed to receive funds from donors who already have funds or who have access to funds. Generally these funds when received in the implementing country are exempted from income tax.
- In fact, the local legislations which facilitate the registration of these entities for legal purposes themselves disallow any kind of activity which earns an income for the organization.
So, in order for an organization (NGO) to be legally able to engage in resource mobilization they have to:
1. Ensure that the articles of association / constitutions that they operate under provides for such activities.
2. Get the governments to recognize them as charities (this is generally done by conforming to already existing legislation or you would need an act of parliament or for parliament to pass new legislation to facilitate this).
3. Once you are registered as a charity that qualify for fund raising which is tax free you can look at the spectrum of resource mobilization activities which are at your disposal.
Fund raising activities in general falls in to the following broad categories.
- Cause / Issue based (HIV/AIDS, TB, Child Labour, etc.).
- Event based (Tsunami, War, Earthquake, etc.).
- Faith based donations to religiously affiliated organizations
- Bi-lateral funds.
- Multi-lateral funds
There is however another resource mobilization strategy which is “Income Generation Projects” which is: an organization (NGO) can engage in commercial activities such as training, providing a chargeable service, renting of assets, producing some products etc. to generate a profit. This profit is then used for development activities.
If an organization (NGO) wants to use this strategy they need to ensure that the articles of association / constitutions as well as the legislation / act of parliament clearly addresses’ this activity. Otherwise an organization may become liable for income tax. This risk may jeopardize the sustainability of the organization; therefore careful consideration must be given to the legal landscape before engaging in such activities.
However my client has started several “Income Generation Projects” without considering the above. There is a huge risk associated with this and no remedial action is being taken.
As for the income generation projects, they seem to have been started based on good ideas and not based on the profit they can earn to sustain a development project or a part of a project. Further they are being executed by the same staff taken to deliver development services (who by the way have no business skills) to the target groups; needless to say that the “Income Generation Projects” are doing poorly. They are hardly making profits some are making huge losses. In some cases, not only are they making losses, but they have very high turnovers which go beyond the value added tax threshold (VAT). This is a huge risk for the organization.
The assignment was well received by the client and they have already engaged me for a follow up assignment to develop realistic business plans for the “Income Generation Projects”.
Yapahuwa is a historic / archaeological town which boasts the second rock fortress of Sri Lankan kings. It is close to many not so famous archaeological sites and now boasts a new hotel – Yapahuwa Paradise. I recommend a visit to Yapahuwa if ever you are in the north west of Sri Lanka.