Given the wide range of activities supported by charities, selecting the cause you want to support is left to you.

Bhavana Acharya

Whether you’re looking at stocks or mutual funds or fixed deposits or debentures, you know the homework you need to do. You’re well acquainted with performance metrics, valuations, industry prospects and a host of other related issues, and so you know your investment is quite secure.

But there are times when you believe in a cause and donate to organisations that support it. In this context, a donation to charitable organisations and trusts can be likened to an investment decision. Much as you’d invest in a company that is sound and would deliver returns, so too would you want to give to a charity that would put your donation to good use.

While there are parallels between evaluating a charity and a company, the performance evaluation of charitable organisations, quite obviously, cannot be done on the basis of profitability, or margins or income expansion. So how then do you select a charity to support?

Now, charitable organisations cater to a wide range of causes, such as children’s welfare, environment conservation, animal rights and so on. So your first step should be to select the cause you want to support, a decision left entirely to you. Selecting the organisation within that field is, however, not that simple a task. Read on to gather some pointers that could help in choosing an organisation that would best fit your cause while employing your donation to good effect.

First-off, rake up all publicly available information on the organisation. Most publish annual reports containing details related to the mission of the organisation, funds raised, utilisation, programmes and so on. These reports are readily available for your perusal and most organisations would provide you a copy of the same. This would give you a general idea of that organisation’s objectives and activities. A good deal of information is also available on their Web sites.

Next, since a charitable trust’s success is largely a factor of its commitment to its cause, a visit to the organisation will give you an idea of its degree of enthusiasm. Programme directors are usually willing to talk to donors, as are volunteers. Meeting the beneficiaries of the programme or the clients of the organisation would tell you how effective their initiatives are. For instance, take a charity helping children’s education. Talking to the children and visiting their classrooms helps you judge how successful the programme is, and how the children have been benefited. The success of earlier programmes of an organisation is a pointer to how well it may execute planned programmes, which you may help fund.

Besides these, there are a host of other details you can look into, such as the donor list and the management. A good share of bigger donors, whether corporate or high net worth individuals, and directors who have some prominence, speaks well for an organisation’s standing, ability to raise funds and create awareness. Also, look into how often the boards of the organisations meet — it could serve as an indicator of how committed the directors themselves are; an enthusiastic workforce has to be supported by the directors. Check on whether there are any litigations or complaints made against the organisation. Check registration details to determine legitimacy. From a tax perspective, not all donations are tax-deductible, so do take note of that aspect.

Well, so much for the qualitative side. There are also certain quantitative metrics that can be used to narrow down on the choices you have. Since charitable organisations run on funds collected, whether from corporates or individuals, look for how effectively they utilise the funds collected. Funds raised are used for programmes and administrative and operational expenses. Determine the percentage of a charity’s total expenses that goes towards its programmes and how much is spent on administrative expenses. Higher costs of day-to-day running, such as rent, travel expenses, electricity and so on can take up a large portion of funds, squeezing the cash available for the actual programmes. The general norm is that about 70 per cent of expenses should go to programme funding.

Another metric could be to check the cost of fund raising. Such costs may include those incurred in printing flyers or booklets, marketing campaigns, advertisements and so on; a charity cannot be spending too high an amount to raise funds. Simply divide the total cost by the total funds raised to get a percentage figure. For instance, if the cost of fund-raising is at 25 per cent, it means that for every Rs 100 that the organisation raises, Rs 25 goes towards the cost of raising, leaving Rs 75 for both programme expenses and administration.

By set standards, a charity is expected to spend about 85 per cent of funds raised in a year. Larger reserves may mean that the organisation has more funds to fall back on, while smaller reserves indicate near-term funding requirement. However, using this tool as a performance measure largely depends on your perspective. For example, if an organisation is able to fund administrative expenses from interest earned on its reserves, it leaves more funds for the programmes themselves.

Note that non-profit organisations cannot be judged solely on quantitative parameters. For instance, a relatively young organisation may still be writing off initial setting-up costs. This may seemingly push up the contribution of administrative costs at the expense of programme costs. In another example, what constitutes total cost may be classified differently by charities; for instance, some may take advertisements to be an administrative expense due to its repetitive nature, reducing cost of raising funds. Therefore, using quantitative figures in conjunction with other qualitative factors draws a far sharper picture of an organisation’s standing.

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