Understanding Organisation Due Diligence for Donor Funding

Session layout
  1. Donor landscape in India
  2. Overview, rationale, importance, process, being ready
  3. Institutional areas covered during due diligence viz.,
    • Constitutional
    • statutory and regulatory
    • Mission, Vision and core values
    • Governance
    • Policies and procedures
    • Audit and assurance
    • state of health-financial statements
    • Visibility & Reputational


Social sector investment in India

(Source: India Philanthropy Report 2024-BAIN & Co)

*HNI/UHNI includes Family Foundations

-HNI-net worth of Rs. 5 cr, -VHNWI-net worth between Rs. 5 cr and Rs.25 cr, -UHNI-net worth above Rs. 25 cr


So which are the donor categories in India

Donor due diligence is imperative for all above funding entities also considering specific regulations maybe except retail.

What donors look for before funding NPOs


Due diligence

  1. Literal meaning of due diligence is ‘required carefulness’ to avoid harm or loss
  2. Due diligence is universal whether it is for profit or not for profit
  3. In donor funding parlance, due diligence is scrutiny/evaluation of an organization and its work by a donor for selection to partner on an engagement.
  4. The key areas evaluated during donor due diligence
    • Organizational due diligence
    • Programmatic due diligence
  5. Common scenarios for donor-donée engagement
    • Donor reach out to organization directly
    • Organization reach out to donor directly
    • External agency hired by donors reach out to organization
    • Organizations apply for grants against EOI/RFP placed in public domain


Rationale for org due diligence

Objective for org due diligence


Data collection for due diligence

Methodologies for data collection for due diligence

  1. Desk review through secondary data
  2. Data obtained from organisation
  3. Self-assessment checklist obtained from NGO
  4. Scrutiny of audit/assurance reports of past/current donors
  5. Onsite visit/meeting org leadership for org due diligence
  6. Field visit for programmatic due diligence for a pending grant proposal

The exercise maybe conducted by donor staff or third-party professionals

Process of org due diligence
  1. Begins once a proposal is submitted against EOI or standalone as pre-award activity of the grant management life cycle
  2. Conducted by grantor before formal engagement with a grantee
  3. Involves detailed scrutiny for various aspects of compliance, finance etc
  4. Hard and soft due diligence-quantitative data vs qualitative factor


Areas covered during Org due diligence

  1. Constitutional
  2. Statutory and Regulatory
    • Registration/approval
    • Compliance
      • Registration related
      • Constitution related
  3. Mission, Vision and core values
  4. Governance
  5. Policies and Procedures
  6. Audit and Assurance
  7. State of financial health-financial statements
  8. Visibility

Constitutional

1. Type of charitable organisation permitted in India as per applicable law:

Each type of entity has its unique features. We are talking of public charitable or religious cum charitable institution but not private or religious institution. Mere constitution does not entitle the entity to benefits like tax exemption, FC receipts etc unless compliance of such specific laws is ensured.

2. Registration/incorporation documents-MOA C RCR for society, Trust deed for trust and MOA and AOA for section 8 company

These documents is charter and rules and procedures for running the entity

3. Mandatory provisions-name, state, geography, objects, General body, Governing body, Powers and Duties, Accounts, Banking, Audit, Dissolution, irrevocability for trust.

Very important that constitution documents are complete

4. Registration of constitution documents with appropriate authorities as per statute and state procedures-sub registrar or charity commissioner for trust deed, deed and not trust is registered, Registrar of society or as prescribed for society and ROC for section 8 company both for section 8 License and COI

5. Knowing your registration no and date is crucial-like for a trust

2a. Statutory Registration/Approval

Please note: Information is for reference only. Read our disclaimer here.


Revision #15
Created 8 January 2025 11:08:56 by Pooja
Updated 24 February 2025 05:28:39 by Pooja