FINANCE AND INVESTMENT CELL, ST.

STEPHEN’S COLLEGE, DELHI

FINANCIAL LITERACY CAMPAIGN,

FINANCE AND INVESTMENT CELL
ST. STEPHEN’S COLLEGE
presents

‘SAKSHARTH’2018
PRELIMS

7 PM, 10TH MARCH, 2018

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PLEASE REMEMBER THE FOLLOWING:

1. You have 24 hours to solve the case study.
2. You will be tested on your logical, analytical, reasoning and innovative skills.
3. All solutions must have the Team Name, Participant Names, Phone Numbers and
College Names.
4. Attach your solutions in an email and send it to us on this e-mail ID:
eternalflc@gmail.com
5. Please mail the case to us latest by 7 PM, 11th March, 2018.
6. The solution to the case question should not exceed 3-4 pages. (Calibri/Times New
Roman, Size 12)
7. There is no pre-defined analysis format or presentation format to be followed. You
are free to use any metric including SWOT, PESTLE, etc. It’s completely at your own
discretion.
8. State your assumptions clearly and justify them. Please show all relevant calculations
(if any).
10. Use of Internet is permitted.

In case of any queries, please write to eternalflc@gmail.com or you can contact us at:

Pragati Rastogi: +91-9538767691

Naren Bhatia: +91-9997980999
Karan David: +91-880889999

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 FINANCE AND INVESTMENT CELL, ST. STEPHEN’S COLLEGE, DELHI

FINANCIAL LITERACY CAMPAIGN, ST. STEPHEN’S COLLEGE

‘SAKSHARTH’-PRELIMS

FOREIGN CONTRIBUTION (REGULATION) RULE (FCRR)

The Foreign Contribution (Regulation) Act, 2010 is an act of the Parliament of India, under
the 42nd Act of 2010. It is a consolidating act whose scope is to regulate the acceptance and
utilisation of foreign contribution or foreign hospitality by certain individuals, associations or
companies, and to prohibit the same for any activities detrimental to the national interest and
for matters connected therewith or incidental thereto.

According to Rule 4 of the FCRR 2011, NGOs cannot use foreign contributions for investment
in mutual funds and other speculative investments.

Speculative activities have been defined as:

1.
a. Any activity or investment which has an element of risk of appreciation or
depreciation of the original investment, linked to marked forces, including
investment in mutual funds or in shares;
b. Participation in any scheme that promises high returns. This can be in the form
of investment in chits, land or similar assets not directly linked to the declared
goals of the organization.

2. A debt-based secure investment shall not be treated as speculative investment.

In view of the above, secure investments and fixed deposits in any bank or Government
approved financial institution which ensures a fixed return will not be treated as speculative
investment.

POLITICAL SCENARIO

According to the Intelligence Bureau report, Impact of NGOs on Development, NGOs and their
international donors are planning to target fresh economic development projects by the
government. The opposition to development projects in the country by a significant number
of NGOs will have a negative impact on the economic growth by 2-3%.

The Home Ministry recently ordered to revoke the FCRA licence of Public Health Safety and
Funding India (PHSFI) to increase the inflow of foreign funds. This was reportedly executed on
the grounds of “prejudicially affecting the public interest and economic interest of the state”,
acting as one of the many cases where the government revoked FCRA licences of NGOs.

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Considering that over 83 NGOs have indulged in violations detrimental to public interest and
in contravention of stated provisions of FCRA, the Home Ministry announced a need to revise
its order for renewal of registration of NGOs in public interest.

GOVERNMENT ACTION

Taking into consideration the severe violations of over 83 NGOs, the government has revoked
the licenses of 4000 NGOs who are in possession of foreign aid of over 80 lakh rupees. These
NGOs will be reviewed by a special committee set up by the Home Ministry, and their licenses
will be renewed only after a minimum of 2 years. Since the majority of violations by the NGOs
have involved foreign aid investment in unfair or risky ventures, the government has been
compelled to release a revised version of the FCRR. Under this revision, no NGO has the
capacity to use money received as foreign contribution for investment in debt-based secure
instruments (irrespective of whether the NGO currently has a license under FCRA or not).

The consequences of the revised FCRA law and the IB report in succession are potentially
detrimental to the functioning of civil society. This attack on foreign funding hasn’t resulted
in the sudden rise of domestic donations. In addition, the optimism of those involved in NGOs
has faded. This restriction has resulted in the folding of several organisations.
It’s estimated that at least 10,000 FCRA licenses, mandatory to receive foreign funds, will be
revoked once the government’s administration starts implementing the act in full force. Some
reasons are purely administrative – organisations failing to submit the proper paperwork
- but it is also a strategic move requiring short turnaround times, or digital returns for small
organisations, which presents a huge barrier to small NGOs lacking capacity.

Regardless of NGOs finding themselves under threat, the government refuses to cooperate.

HOPE FOUNDATION

The HOPE Foundation is a not-for-profit organization engaged in empowering persons with

disabilities and distress in socio-economic-cultural fronts through its various initiatives in
fields such as Education, Livelihood, Environment, Health & Nutrition, Sports, Culture and
Rehabilitation.

BUSINESS MODEL

The HOPE Foundation is one such NGO severely affected by the revised FCRR Rule, and is
among the 4000 NGOs whose FCRA license has been revoked.

It has the following contract with the US-based NPK Trust:

1. The Trust donates $150,000 (or ₹ 1 Cr) each year to the NGO.
2. At the end of the year, the NGO has to pay 1%, of the amount of this donation back to
the Trust i.e. $1,500 (or ₹1 L)
3. Out of ₹1 crore the NGO gets, 50% is designated as restricted, which the NGO can
spend only on the direct welfare of the people it takes care of. The remaining 50% is

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designated as unrestricted, which the NGO can use to fund its operating costs such as
salaries, investment and so on.

At the time of payment, the exchange rate for USD/INR was ₹66.7. Also, all payments to/from
the trust are made in dollars.

Additionally, the NGO trains all its members in the production of different forms of
handicrafts. It then looks for markets for these produced handicrafts. For instance, the NGO
has entered into a contract with Delhi Tourism and Transportation Development Corporation
(DTTDC) which permits its members to sell their products at Dilli Haat. Whatever is earned
from the sale of the handicrafts is to be retained by the members themselves.

Last year, the amount generated by the NGO through their contract with DTTDC was ₹12 lakh.
This amount, however, was deemed insufficient to meet the needs of its members, and so
₹20 lakh was disbursed among them. The shortage of ₹8 Lakh was financed by the generous
government and private donations.

Skilling

The need to facilitate and uplift the disabled through basic skill-based livelihood training, and
to provide broader employment opportunities is recognized by HOPE. To this end, they
provide technical and sector-based skill training, like training in BPO and Call Centre
operations, to youth with disabilities and from underserved backgrounds. Training categories
include tele-calling, communication skills, accent training, customer service, soft skills, client
relations and conflict management. 15 Skilling Centres currently running across India at major
cities including Bangalore, Jharkhand, Anantapur, Guntur, Delhi, Chennai, Mumbai and
Hyderabad have trained around 9,550 unskilled youth, with a placement record of above 72%.
Given the high demand for such services and the potential to transform lives of youth with
disabilities, HOPE is planning to upgrade their model and expand it to 5 new geographic
regions.

Education

The HOPE Foundation encourages students with disabilities to pursue higher education in
their preferred institutes. Students are offered end-to-end support, ranging from college
enrolment into specific courses to practical support in terms of fees, digital audiobooks,
scribes, tutors and hostel facilities. Academic expenditure is incurred by the NGO, along with
study material in formats accessible by persons with visual and print-related disabilities. HOPE
Foundation provides practical support to more than 528 students in pursuing higher
education each year, thus providing paths to successful careers. Some students have
completed their studies from premier institutions such as IIMs, and procured jobs in large
corporate companies.

With the support of kind donors, partner NGOs, various institutions, government, PwDs,
Disabled People's Organizations (DPO) and Care-Givers, HOPE positively impacted the lives of
over 15,000 PwDs, and built the capacity of over 24,000 other stakeholders during this year.
HOPE has taken steps towards forming partnerships by having new corporates supporting its

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projects. One such avenue for stronger partnerships may be founded upon the growing
promotion of Employee Engagement programs by corporates. HOPE also partners up with 5
other NGOs for its various programs, expanding its reach to 5 states and 25 cities.

The NGO sector has seen a sudden growth in its numbers, making the availability of
scarce funds increasingly difficult. Organisations such as Cry foundation, Goonj, Teach For
India, etc., are in the sector and pose competitive pressure in the fund market for HOPE since
private companies prefer to be associated with more prominent NGOs. NGOs such as Smile
foundation, have resorted to creative means to augment their notoriety. For example, the
critically acclaimed documentary, I am Kalam, was produced by Smile Foundation and stands
as the first film to be produced by a development organisation.

FUND USAGE

HOPE Foundation comprises of a family of over 1500 people. It has 358 permanent
employees, out of which 239 are from PwD department. The staff salaries range from ₹8,000
to ₹1,05,000. It has 3 foster homes in Delhi, Gwalior and Dehradun, fostering over 400 people
with different disabilities.

The NGO has the following working plan for utilizing its funds: It uses 25% of the funds which
it receives from the US Trust to finance its operating costs like employee salaries, rental costs,
etc. It invests the remaining 50% of its funds in debt instruments. The NGO has a history of
investing in varied portfolio of debt instruments in the past. However, in the last 3 years, it
has consistently invested in Rural Electrification Corporation bond which has paid an annual
interest of 2.5%.

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Income (in rupees) Expenditure (in rupees)

Donation from NPK 1,00,00,000 Operating Cost (COE, rental 50,00,000

Trust payments, etc)

Govt. Donation 5,00,000 Investment in Rural Electrification 50,00,000

Corporation bond

Self-Generated 12,00,000 Providing healthcare, education, skill 50,00,000

development activities to its
members

Interest income on 1,20,000 Repayment of 1% of 1 Cr to Trust 1,00,000

investment

Anonymous Private 3,00,000 Income distributed among members 20,00,000

Donations of NGO

Net worth of securities 50,00,000 Total 1,71,00,000

purchased last year

Total 1,71,20,000 Net assets generated 20,000

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QUESTION

The NGO is no longer able to generate money from a debt-based secure investment due to
the FCRR amendment. Under the same, it also needs to repay 1% of every international
donation every year. Thus, the NGO is in a predicament on how to repay the amount as well
as continue to receive aid, given their revoked license.

You have been hired by the board of the NGO to analyse the situation and provide the best
available solution in this emergent situation.

The following are a few plausible options for the NGO to take. Provide a solution either using
any one/many of the given below options or come up with a unique solution of your own,
providing suitable analysis and justification for the same.

1. Investing in other Instruments

Investments which do not come under the purview of speculative investments, and
are not debt based secure investments can be considered to obtain a fixed return on
the principal.

2. Financial Support from the Private and Public Sector

NGOs can receive financial support for funding projects, operations, salaries and other
overhead costs from private and government donors.

3. Organising Special (Fundraising) Events

Special Event is an outreach program which serves multiple purposes for an

organization. It can help raise awareness for a cause, act as a fundraiser, allow donors
to engage with the grants beneficiary, and raise the spirit of giving.

4. Raise the profitability of the NGO

The profitability of the operations performed by the NGO, including the sale of
handicrafts at Dilli Haat, can be increased via various methods.

5. Collaborate with International NGOs

The growing scrutiny of INGOs and aid agencies, and the results and value for money
agenda means there is huge demand for this, as well as a desire for this to be done in
ways that do not undermine the development process.

All the Best!

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TITLE SPONSOR

MEDIA PARTNERS

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OTHER EVENTS OF FIN LITERATI

(Note: The winners of Unnati move directly to the finals of Saksharth)

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