The CSR Policy Rules allow only 5% of total CSR outlay as overhead & administration expenses, including capacity building of CSR personnel.
It has since been debated, if 5% would be enough. Even when the Ministry of Corporate Affairs formed a High Level Committee for improved monitoring of the implementation of Corporate Social Responsibility policies by the companies under Sec 135 of the Companies Act, 2013, in 2015, that concluded this ceiling should be increased from present 5% to not more than 10%, representatives from the Department of Public Enterprises expressed their dissent on the grounds that this limit is enough if the projects are well executed.
For more insights, BridgeSpan's study revealed that indirect costs as a percentage of direct costs on the project averaged at around 40%. The study examined the cost structures of 20 nonprofit organisations, across four different segments. At those organisations, indirect costs ranged from 21 percent to 89 percent of direct costs.
More details may be found on the following link to the article published in Forbes, India.
While it is observed with most of our clients, that NGOs usually fail to meet the corporate expectation of quality reporting, MIS and communications, such a limitation on the indirect expenses may make it almost impossible for the NGOs to invest in human resources with skills and capacities that may match the coporate expectation, despite of doing excellent work on the ground.
The far reaching effects of this have also been that most of the CSR funds have been given to the bigger NGOs that are able to absorb the higher indirect costs or that have already invested earlier in such skills for its employees. The major brunt of this is borne by the smaller NGOs that despite of doing great and meaningful work on field, lack funding due to inability of preparing good quality proposals, reporting and impact assessments which are demanded by the corporates granting CSR funds.