In recent years, though the number of Indian billionaires has been rising steadily, they have — unlike their Western counterparts, who almost invariably set aside half their life’s earnings for charity — not shown a willingness to give. Of course, there exist some honourable exceptions, but for a country that has a rich tradition of charity and where almost every religion preaches the importance of giving back, it is a bit of a dampener that our super-rich worry more about their lifestyles than about the worse off around them.
Of course, it is their money and they are free to do what they want with it. And yes, they are entitled to a lifestyle of their choice. But shouldn’t they also be a little more mindful of the less fortunate around them and take some effort to try and pull them back from the brink? While there may be any number of reasons for why we are like this, the solution for the problem is simple: loosen the purse strings. And why just high-networth individuals? Why not all of us?
Go ahead, discover the joy of giving. After all, it is something you can’t buy.
Giving back has always been synonymous with the Indian ethos but charity now comes with a professional touch. Even as the debate on whether the Indian rich are doing enough for the underprivileged continues to rage, a large number of millionaires are bringing the same kind of rigour to philanthropy that they bring to business.
For starters, a high networth individual's (HNI) decision to give back is no longer dependent on mercurial moments inspired by poignant sightings through tinted windows. Instead , the desire to give back is being scientifically monitored and analyzed by a growing breed of personal wealth managers who are mapping out the entire philanthropic landscape for the HNIs. And as the business of giving matures, the personal wealth manager is also sharpening his skill-set to not only help HNIs grow their wealth but also identify avenues for charity and do due diligence on potential recipients.
The ecosystem in the business of giving is therefore also changing dramatically, something that happened in the US in the 90s, when UBS became the first bank to offer this service as an add-on to its clients. In India several banks like Barclays, Ambit, Altamount Capital Management , RBS NV and Kotak have recently followed suit.
Here's how it now works. Wealth managers get in touch with large strategic philanthropy foundations (SPFs) such as Dasra, Give India and United Way, which in turn shortlist NGOs working in the HNI's favoured areas of charity. The strategic SPFs evaluate the NGOs and their ability to absorb large funds. "In the West, the personal wealth manager is almost a confidante but the relationship is slowly transforming here," says Deval Sanghavi, CEO of Dasra, an SPF that defines itself as a "catalyst for social change" . Also, HNIs are now more interested in giving effectively than blindly writing a cheque," says Sanghavi, who often identifies an NGO for an HNI.
In India, businesses have been largely dominated by the family-run structure and it's the 'munshi' or accounts manager that is usually the trusted lieutenant. But as more companies are transforming into professionally-managed organizations , banks are sniffing an opportunity.
Growing private donations spur professional touch
Banks are beginning to realize that this service will strengthen their relationship with the client," says Deval Sanghavi, CEO of Dasra.
Since legal restrictions don't allow personal wealth managers to recommend avenues for philanthropic investments, umbrella organizations like Dasra, Give India and United Way double up as philanthropy advisors, usually presenting three or four options with detailed reports on the work of each NGO.
Echoing the sentiments of a section of HNIs, Piruz Khambatta, chairman of soft drinks concentrate maker Rasna, says he feels the need for professional help in identifying an NGO to channel funds for charity. "Identifying one is the biggest challenge," says Khambatta, adding that a large part of his group's philanthropy currently benefits religious trusts.
So what's in it for banks and their wealth managers? The success of events like the Indian Philanthropy Foundation where roughly 150 HNIs raised upto $250 to 300 million, could be one. The burgeoning population of HNIs, reportedly expected to treble in the next five years to 2.19 lakh, is another . Then there's the perennial shortage of time faced by HNIs busy dealing with the complexities of their own businesses.
Sutapa Banerjee, CEO (private wealth) at Ambit Capital, feels that the trend of private wealth managers helping HNIs in philanthropic activities has been fuelled by the growth in private charitable contributions, which is up 200% from 2006 to 2010.
Once brought on board, the next step is to scout for an ideal fit. "After an HNI identifies a cause he or she feel passionately about, he/she wants to know if the NGO is run professionally and with integrity, the reach and effectiveness of the work, and actual change brought about," says Richa Karpe, a director at Altamount Capital Management.
For Ashish Khaitan, head of private wealth at Kotak, this service is a natural extension. "Since we have an important role in financial planning we are also routinely asked about where to give. While the trend of private banks structuring charity needs globally started about eight years back, it's a comparatively new phenomenon here, but getting more active lately with business families getting more focused. Most families have a fair idea of the causes they want to support. We act as the bouncing board and help them in fine tuning their philanthropic activities," he says, adding that two areas which receive the most funds are education and healthcare.
It's already big business for private bankers globally who have positioned themselves with a firm eye on philanthropy. While Credit Suisse launched a philanthropy event that featured European royalty and Peter Buffet with their private wealth managers , Barclays sponsored an Indian philanthropy event called "Coffee with Philanthropy" to tackle what they diagnosed as "the cheque book syndrome" among India's rich.
However, there are some who are not as buoyant about the trend yet. Dhaval Udani, a volunteer from Give India, believes that while the seed has been sown, there is more ground to be covered. "Indians are still getting used to their wealth and to the idea of giving it away. Wealth managers don't suggest options proactively yet. While banks have introduced this conceptually , they have failed to move ahead to any great extent," says Udani.
Ajay Piramal, chairman of Piramal Healthcare, would perhaps agree. He has committed investments of Rs 200 crore for philanthropy but still does most of it without help from wealth managers. "Among others, we run an education project for youth leadership on our own, and a health call centre along with the government ," he says.
The dynamics of giving is changing at the top, but it'll take a while for its impact to be felt at the grassroots.
Corporate 'Giving'
If the inheritance is taxed at a high rate, some rich people may prefer to give away a part of their wealth in charity.
Warren Buffet and Bill Gates -- two of the world’s richest men -- recently came to India and exhorted Indian businessmen to follow them in pledging 50 per cent of their wealth in charity. Recently Ratan Tata, in an interview to British press, criticised Mukesh Ambani for building their 27-floor super-luxury residence in Mumbai warning that this is the sort of thing revolutions are made of. In a sense, he too was speaking against conspicuous consumption and in favour of giving back to society.
No businessman in India has actually followed Buffet and Gates by pledging anything along the lines suggested by them. But that does not necessarily mean that they are less interested in the welfare of their less fortunate brethren. In fact, historically there have been many different models (and motivations) of giving and new models are appearing all the time as a result of changes in society and technology.
In India where poverty is much more widespread within known circles (than distant as in many western societies), quite often people help their less fortunate relatives and neighbours in trouble whom they know personally. Also, the blind singer or the monk from a charitable organisation may appear at the door and routinely collect a small contribution. These acts of giving are not publicised, unlike the high-profile initiatives of people like Bill Gates.
The rate of inheritance tax may also act as an inducement. If the inheritance is taxed at a high rate, some rich people may prefer to give away a part of their wealth in charity to their preferred causes, achieving recognition and satisfaction during their own life time, instead of giving it in taxes to the government after their death. They may not also like the way the government would spend the tax revenue from their hard-earned money. On the other hand, with zero inheritance tax (as in India) first generation rich people may like to bequeath their wealth to the next, continuing to build their industrial empire and may think of giving at a later stage. Some may also feel that by successfully running businesses and creating productive jobs they are helping society more than by giving money in charity.
In addition to the traditional CSR (corporate social responsibility) projects where companies spend money to benefit neighbouring areas/communities, new models have emerged like, say, one cent or 50 paise of the sale price will go to a known charity. By engaging in philanthropy and projecting a more socially responsible image, companies try to differentiate themselves from others and hope to increase sales and profits.
This is not to suggest that all acts of charity come out of purely selfish motives. As a matter of fact, we all have conflicting emotions of selfishness and selflessness. This is true of individuals, businesses and nations.
In earlier days, religion used to play a much bigger role in philanthropy. Churches, temples and mosques regularly collected small (and sometimes large, depending on the contributor’s ability to pay) amounts from a large number of devotees. Many philanthropic activities (like feeding the poor, relief in natural calamities, providing education and medical services) were financed from these funds. Even today high-profile religious trusts with enormous money collected from devotees exist and flourish. But unfortunately, some of these have become primarily money-making institutions which help their promoters live a life of luxury with the help of tax-free money, though they also do some social work by running schools, hospitals etc.
NGOs are becoming more powerful and visible as vehicles for promoting various social causes. Some have joined the movement due to genuine concern for the underprivileged and are making personal sacrifices in various ways like giving up lucrative jobs. For some others – specially some fashionable people from well-connected families -- it is a profitable venture which also gives them a good feeling, social recognition and media attention. Because of their better connections it is also easier for such people to find rich donors abroad who are willing to provide a steady stream of contributions to the NGO.
Social business
Then we have the social business model which explicitly goes for (low) profit while serving the poor. Bangladeshi Grameen Bank microcredit model falls in this category. Another interesting example is the case where the big multinational food company Dannon agreed to sell special nutrient-rich yogurt to undernourished Bangladeshi kids at minimal profit. Dannon got good publicity helping the underprivileged. As part of the bargain, Dannon was permitted to sell other food products (like high-end cookies) at high profit margins in Bangladesh which they would not be allowed to do otherwise.
What is the best way to give? Money and time have alternative uses. Some private enterprises have come into being (Global Giving, as an example) that are doing research on both successful and unsuccessful initiatives of philanthropy, providing information on the impacts of alternative projects on the lives of actual beneficiaries from different parts of the globe and helping to connect givers and receivers thousands of miles apart. It is business for them. The objective of their analysis is to provide maximum impact per dollar spent in philanthropy. For example, it is possible that providing mosquito nets or safe drinking water may produce greater impact (per dollar spent) on the lives of the beneficiaries than providing medicines to treat malaria or chronic diarrhoea and malnutrition.
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