Skip to main content

FCR (AMENDMENT) ACT, 2020


SLEDGEHAMMER OR PRUDENT?


Any registered entity/ NGO, operating for five years or more and has made at least INR 10 Lakhs in the previous three years to attain its main objectives audited by a qualified chartered accountant, such NGO is eligible for FCRA registration. They also need to be registered with the Ministry of Home Affairs. The Foreign Contribution (Regulation) Act, 2010 consists of a framework for regulating and controlling the acceptance and utilization of foreign contribution and foreign hospitality. The FCR Rules require the NGOs receiving more than a crore rupees or equivalent of foreign contribution to disclose the information. Such disclosure is to be done through the direct efforts of the NGO as per Rule 13. The FCRA certificate is valid for a period of five years and must be thereafter renewed in the prescribed manner. NGOs not eligible for registration can seek prior approval from FCRA for receiving foreign funding. This permission is granted only for a specific amount of foreign funding from a specified foreign source for a specific purpose. It remains valid till receipt and full utilisation of such amount.

The key amendments proposed in the bill are discussed hereunder:   
  1. Bar on public servants to accept foreign contribution: The bill proposes to widen the list of the persons who are prohibited to accept foreign contributions. Now, public servants are proposed to come under the umbrella of the prohibited list.
  2. Prohibition to transfer of foreign contribution to another person: Earlier, a person who was registered and granted a valid certificate could transfer to another person if he had a certificate but now, the bill seeks to prohibit transfer to another person altogether to restrict money laundering.
  3. Limitation on usage of foreign funds for Administrative purpose: The bill also seeks to limit the use of foreign funds received under FCRA for administrative purposes from the current limit of 50% to 20%.
  4. Requirement of FCRA Account: Now, every person who makes an application under Foreign Contribution (Regulation) Act needs to open the FCRA account in a manner as specified under the Act and foreign contribution shall be received in such an account only.
  5. Mandatory Aadhaar Card to receive foreign funds: The bill proposes to make Aadhaar card mandatory for all Office bearer or directors of all NGOs and other organization which eligible for foreign contribution. However, a passport or overseas citizen of India card is required in the case of foreign national.
  6. Time Limit for suspension of certificate: The Bill proposes to empower the Government to further extend the time limit for suspension of a certificate that has been issued under FCRA for a maximum limit upto 180 in addition to extant limit of 180 days.
  7. New provision for surrender of certificate: In order to provide an easy exit route to the genuine person, the bill proposes to introduce a new provision for surrender of certificate. If the Government is satisfied that such person has not contravened any of the provision of FCRA, then their application could be surrendered.
Now, NGOs and civil society groups get foreign funding for social cause like education, health and livelihood. The New Bill proposed 4 major changes. First, it restricted any FCRA organisation which receives the money from onwards distribution to even other FCRA organisations. This is blow where larger entities raise the FCRA money as they have the capacities needed for raising money by negotiating with donors & then share this money with frontline smaller organisations which work directly with the communities. The second is the idea of restricting administrative expenses to 20%. If the NGO is doing research, advocacy, capacity building, networking, model building for social innovations then most of the expenses are on meetings, salaries, travel & would be clubbed under administrative expenses, which would make the organisational existence unviable. The third major amendment suggests that every FCRA organisation should have their FCRA bank account in a single Delhi branch of SBI which don't make any sense. Amendment of S17: every person granted certificate or prior permission under S12 shall receive foreign contribution only in an account designated as FCRA Account to be opened in such branch of SBI at New Delhi as notified by govt. The fourth is the enhancement of power of the investigative officers. This would mean arbitrary power to the government officials who for political reasons can harass or destroy an institution.

With new FCRA Law, what are the damages that small NGOs may suffer?

Undoubtedly small NGOs would be worst hit with the new FCRA Law. Many will not be able to access foreign funds because the scheme under which they receive these funds are from larger NGOs, known as “regranting”, which has been banned. The amount NGOs can spend on administration has been cut from 50% to 20%. This will mean smaller NGOs will not be able to employ enough staff to remain stable & implement strategies they require to grow. If they are to receive foreign funds, NGOs will have to open an account with a Delhi Branch of SBI. The difficulties of dealing with a bank which may be many thousand kilometers away is only one of many bureaucratic obstacles that the New law will create for NGOs.

NGOs fill the gaps left by the inadequacies of the government, provide last-mile connectivity for the delivery of government schemes, promote handicrafts, research & encourage participation in development, teach awareness of the wider issues involved in target-based schemes such as Beti Bachao, Beti Padhao or the Swachh Bharat Mission. This change in FCRA laws is only further expected to increase losses in income, jobs, and the capacity of the social sector to serve communities in need. It has been suggested by a number of policy experts that the government needs to reconsider this sudden change in regulation, especially when the basis for it seems unclear. With no clarity on the law’s applicability to ongoing grants, or information on the new banking requirements, NGO transactions and operations have frozen, in a mini replay of demonetisation in 2016.

Implication for CSR funders:
  1. CSR Funders will have to ensure either by diligence or by taking a warranty from the nonprofit partners that they do not have any ‘public servant’ on their governing board. 
  2. CSR Funders will have to ensure their funds are not further distributed by the recipient entity by incorporating necessary restrictions in the terms of engagement with the nonprofit partner. 
  3. CSR Funders will also have to ensure that the 20% cap on administrative expenses is clearly marked in the budget/purpose of utilization shared by the non-profit partners. 
  4. CSR Funders will also need to be aware of the date of validity of the FCRA registration of their non-profit partners, to ensure that projects do not get stalled midway due to delay in process of renewal of FCRA certificate.
Implication for Foreign Contributors: 
  1. Foreign Contributors (FCs) will have to ensure, either by diligence or by obtaining adequate warranties from the recipient entities that such non-profit partners do not have any ‘public servant’ on their governing board, which would make them ineligible to receive foreign contribution. 
  2. FCs will have to ensure their funds are not further distributed by the recipient entity by incorporating necessary restrictions in the terms of grant.
  3. FCs will have to ensure that the 20% cap on administrative expenses is clearly marked in the budget/purpose of utilzation shared by the recipients. 
  4. FCs will need to be cognizant of validity of FCRA certification of their recipient organisations.
  5. FCs, in case of a collaboration, will need to enter into separate grant agreements with each of their non-profits partners rather than through one anchor FCRA-registered nonprofit which would further sub-grant it to other non-profits.
Keeping in mind the issues that have been highlighted, the new, small and medium NGOs must keep abreast with the changing landscape of fundraising and leverage technology for the same. A few suggestions that may be helpful are:
  1. The reliance on foreign donations must be reduced given the uncertainty. Plans for the next 5 years should be made with a focus on raising more than 80% of the funds domestically.
  2. CSR will burn out within no time given the new-found competition in the market and also because the government has also become a player in the fundraising space with PM CARES. This means new avenues like retail, crowdfunding, online marketing, events and other avenues that I cannot now foresee must be discovered and put to use.
  3. With every single means of communication bombarded with fundraising requests, one needs to stand out with clear concise stories of change and definitive calls to action. Investing in building a good fundraising and communication team may be the order of the day. Smaller NGOs can work with consultants and agencies to get the same job done. Gone are the days where NGOs would want to spend more than 85% monies in the program delivery. If one tries that, they will see the bottom of the barrel before they know.
  4. Collaborations among NGO community are not easy to come by, especially with everyone believing in their own “theory of change”. However, a consortium approach where human and other resources are shared between organizations working in the same geography might be the way to get the best bang out of your buck. Easier said than done though.
  5. Similarly, collaborations within domestic funders may also open up a culture akin to start-up funding in the development space. This would mean a group of funders funding a cause implemented by a group of NGOs, something you don’t get to hear every day in India.
  6. Lastly, there is a great opportunity for intermediary organizations to tap into the HNIs of India, who are still quite behind in giving compared to their western counterparts.







This blog provides purely informative content. VSLA claims no copyright over the publications

Comments

Popular posts from this blog

"SELF-RELIANT INDIA" IN A COVID RIDDEN WORLD

“ As for food, India has plenty of fertile lands; there are enough water and no dearth of manpower. The public should be educated to become self-reliant. Once they know that they have got to stand on their legs, it would electrify the atmosphere ” – Mahatma Gandhi Covid19 as a prospect in crisis The Covid ailment (COVID-19) pandemic, which began in the city of Wuhan, China, has immediately spread to different nations, at first to a great extent influencing Italy and the USA, with cases been accounted for around the world. As of May 8th, 2020, in India, 56,342 positive cases had been accounted for. India, with a populace of more than 1.34 billion—the second biggest populace on the planet—is experiencing issues in controlling the transmission of serious intense respiratory condition Covid 2 among its populace. Different systems are quickly to deal with the current episode; these incorporate computational demonstrating, factual instruments, and quantitative investigations to control the s

RESOLUTION OF ARBITRATIONS THROUGH CONSOLIDATION

  BACKGROUND Arbitration is an ancient concept and its origin can be traced back to Greek and Roman City-States. As early as the sixth century B.C., Greek city-states were resolving disputes like ownership of properties, assessment of damages, etc. through arbitration. Even the works of eminent historians like Herodotus and Thucydides refer to arbitration. Under Roman law, the term ‘ compropmissum ’ or compromise was a well-known and oft chosen mode of dispute resolution and is considered to be a precursor of arbitration. India also has a long tradition of arbitration and the concept of non-judicial dispute resolution was prevalent in the Indian society,  before any codified law. The works of Yajnavalka refers to certain special arbitration courts in ancient India. Even the panchayat system in India is considered as one of the earliest forms of arbitration. While describing the concept of arbitration, Chief Justice A. Marten observed as “ It is indeed a striking feature of ordinary Ind

A COMPREHENSIVE HANDBOOK FOR MERGERS AND AMALGAMATION

A business can grow over time as the utility of its products and services is recognized in the Market. But in this era of Globalization where the environment is dynamic, competitive and rapidly evolving, Mergers and acquisitions has gained importance as a method of bringing immense inorganic growth to a business.  It provides various benefits to the entities which include increased resources, access to market, technology, reducing the competition, diversification of business, Regulatory, Tax and fiscal considerations. There is always a synergy value that gets created with the joining of two entities which is more when compared with their individual stands.  Mergers can be defined as union of two entities into one; acquisitions are situations where one player takes over the other to combine the bought entity with itself. It may be in form of a purchase, where one business buys another or a management buyout, where the management buys the business from its owners. Further, de-mergers, i.